Vox Populi Article

TAKING IT TO THE STREETS
What the New Vox Populi Risk Means for Politics, the Economy and
Markets
Citi GPS: Global Perspectives & Solutions

May 2014
Tina M Fordham
Matthew P Dabrowski
Robert Buckland
Edward L Morse
Willem Buiter
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May 2014
Tina M Fordham, Managing Director, is the first and only Chief Global Political Analyst on Wall Street. She has been
named in the Top 100 Most Influential Women in Finance and the Top 19 Economists on Wall Street. With Citi
since 2003, she has pioneered a political science-based approach to investment research, specializing in geopolitics
and socio-economic risks as well as focusing on more traditional elections and policy analysis. Ms. Fordham is a
member of the World Economic Forums Geopolitical Risk Committee, Associate Fellow at King's College Graduate
Centre Risk Management, and a member of Chatham House and Londons Kit Cat Club. Previously she served as
Senior Adviser in the UK Prime Minister's Strategy Unit and Director of Global Political Risk at Eurasia Group. Ms.
Fordham earned her Master's in International Affairs from Columbia University's School of International and Public
Affairs.
+44-20-7986-9860 | tina.fordham@citi.com
Matthew P Dabrowski is a Political Analyst at Citi. A pollster by training, Matt specializes in public opinion research,
global political analysis and electoral politics. Matt has managed political campaigns on both the statewide and federal
levels and his experience includes research 'in country' in Afghanistan, on behalf of Members of Congress, and with a
former U.S. presidential candidate. Matt holds a B.A. degree in political science from St. Bonaventure University and
an M.A. in survey research from the University of Connecticut. He is a member of the American Association of Public
Opinion Research and the American Political Science Association. Matt has been with Citi since 2012.
+1-212-816-9891 | matt.dabrowski@citi.com
Willem Buiter joined Citi in January 2010 as Chief Economist. One of the worlds most distinguished
macroeconomists, Willem previously was Professor of Political Economy at the London School of Economics and is a
widely published author on economic affairs in books, professional journals and the press. Between 2005 and 2010,
he was an advisor to Goldman Sachs advising clients on a global basis. Prior to this, Willem was Chief Economist for
the European Bank for Reconstruction & Development between 2000 and 2005, and from 1997 and 2000 a founder
external member of the Monetary Policy Committee of the Bank of England. He has been a consultant to the IMF, the
World Bank, the Inter-American Development Bank and the Asian Development Bank, the European Commission and
an advisor to many central banks and finance ministries. Willem has held a number of other leading academic
positions, including Cassel Professor of Money & Banking at the LSE between 1982 and 1984, Professorships in
Economics at Yale University in the US between 1985 and 1994, and Professor of International Macroeconomics at
Cambridge University in the UK between 1994 and 2000. Willem has a BA degree in Economics from Cambridge
University and a PhD degree in Economics from Yale University. He has been a member of the British Academy since
1998 and was awarded the CBE in 2000 for services to economics.
+1-212-816-2363 | willem.buiter@citi.com
Robert Buckland is a Managing Director and Head of Global Equity Strategy at Citi Research. Prior to that he was a
European Equity Strategist at Citi when the team was ranked first in all the major investor polls. Before joining the firm
in 1998, he was an equity strategist at HSBC for four years. Prior to that, Robert was a sector analyst, economist and
strategist at NatWest Securities, starting in 1989 .
+44-20-7986-3947 | robert.buckland@citi.com
Edward L Morse is Managing Director and Global Head-Commodities, Citi Research in New York. He previously
held similar positions at Lehman Brothers, Louis Capital Markets and Credit Suisse. Widely cited in the media, he is a
contributor to journals such as Foreign Affairs, the Financial Times, the New York Times, The Wall Street Journal and
the Washington Post. He was most recently ranked one of The 36 Best Analysts On Wall Street by Business Insider)
and #23 among the Top 100 Global Thinkers of 2012 by Foreign Policy. He worked in the US government at the
State Department, and later was an advisor to the United Nations Compensation Commission on Iraq as well as to
the US Departments of State, Energy and Defense and to the IEA on issues related to oil, natural gas and the impact
of financial flows on energy prices. A former Princeton professor Ed was the publisher of Petroleum Intelligence
Weekly and other trade periodicals and also worked at Hess Energy Trading Co. (HETCO).
+1-212-723-3871 | ed.morse@citi.com
Contributors
Eric G Lee
Xing Xing
May 2014
TAKING IT TO THE STREETS

What the New Vox Populi Risk Means for Politics, the
Economy and Markets
And those people should not be listened to who keep saying the voice of the
people is the voice of God, since the riotousness of the crowd is very close to
madness. Alcuin to Charlemagne, 798 A.D.
It seems like political risk is on the front page every day: crowds of protestors
gathering, a rally calling for independence, a military coup, or scenes of civil conflict.
Is there more unrest globally, or is 24/7 media coverage creating this perception? Is
social media to blame? We think the answer to this question lies in better
understanding what we call Vox Populi risk, a new variation of political risk which we
have been tracking for the past two years. We define Vox Populi risk as shifting and
more volatile public opinion that poses ongoing, fast-moving risks to the business
and investment environment. In this report, Citis Political Analysis team documents
a dramatic and measurable increase in the number of elections, mass protests and
government collapses over the past three years a 54% increase versus the
previous decade as well as a proliferation of new and fringe political parties,
many of which are anti-establishment.
Although there have been periods of Vox Populi risk throughout history, the
difference today is that these events are happening in high income developed
markets and middle income emerging markets, many of which have enjoyed a
sustained period of growth and improvements in living standards and are
integrated into the global economy and financial system. The authors of the report
that follows believe that Vox Populi risk is a structural change and that it will be a
risk factor affecting both the investment and business environment for the
foreseeable future.
What is causing this change? The authors believe the new Vox Populi is being
fueled by growing perceptions of incoming inequality and anxiety about
globalization, particularly amongst middle classes. In developed markets, this has
resulted in new and alternative political parties which are having an impact on policy
debate and increasing the formation of fragile coalitions and referendum risk. In
emerging markets, there is a greater chance of street demonstrations, rebellions
and sustained tensions that elections may fail to resolve. In some cases, local
protests can become a geopolitical risk almost overnight. For petrostates, a fall in
petroleum prices is leading to an outcry for improved governance and a more
equitable distribution of income.
Thus far, companies and markets have been able to localize political risks thanks to
continued low interest rates. Once rates rise, the impact of systemic political risks
could grow. Greater fragmentation, disruption, and the geopolitical implications of
more vocal, more quickly mobilized public opinion could start to weigh more heavily.
Applying the assumption that Vox Populi risk is unlikely to recede in the immediate
future, this report explores its impact on the global political environment, including a
host of upcoming elections in 2014 and 2015, the global recovery and economic
outlook, financial markets and key sectors such as commodities.
2014 Citigroup
Civil war
Coup detat
Violent crackdown
Violent protest
Nationalism / secessionism
Peaceful mass protest
Regulation
Anti-financial services
Wealth taxes
Populism
Weak coalitions
New parties
Fiscal loosening
Halted reforms
No consensus
RISK LEVEL
Giving the People What They Want
A Risky Business
Shifting and more volatile public

opinion Vox Populi is a new
structural risk that will generate
uncertainty in the business and
investment environment.
Vox Populi Risk
TYPE OF RISK
DM/EM Election & Mass Protests (2000-2013)

25
Australia
20
Austria
Belgium
15
Brazil
10
Canada
China
Colombia
20
00
20
0
20 1
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
Czech Republic
Denmark
Egypt
Post-Crisis Average:
Finland
France
Pre-Crisis Average:
Germany
14.1
21.7
Greece
Hong Kong
Hungary
India
Indonesia
Ireland
Mass Protests (2000 - 2010)
Israel
Italy
Japan
Korea
Malaysia
Mexico
Netherlands
New Zealand
Mass Protests (2011 - 2013)
Norway
Peru
Philippines
Poland
Portugal
Russia
Singapore
South Africa
KEY
Mass protests
Elections
Average
Countries in orange are included
in the Mass Protests maps.
Spain
Sweden
Switzerland
Taiwan
Thailand
Turkey
United Kingdom
United States
11 YEARS
3 YEARS
2000 - 2010
2011 - 2013
May 2014
Contents
Vox Populi Risk: The New Politics of the Street and the Ballot
Box
What Is Vox Populi Risk? Is it Really New? How does it Work?
The Empirical Basis for Vox Populi Risk
Social Media Fuels Flash Mob Democracy, but Doesnt
Guarantee Political Transformation
14
16
Vox Populi and Macroeconomics: Uncertainty Curbs Growth
18
Vox Populi and Macroeconomics: Income Inequality Fuels

Political Economy of Discontent
19
Vox Populi Risk in Developed Markets: Discontent is AntiReform, and Mind the Generation Gap
Rise of the NEAPs
Referendum Risk: How European Votes May Surprise Markets
and Lead to Policy Uncertainty
Vox Populi Risk in Emerging Markets: Mass Protest Can Be

Pro-ReformYet May Not Lead to Change in Government
Vox Populi Risk and Markets
Vox Populi Risk in Resource Economies: Challenges to the
Rentier States
Vox Populi Risk and the International System: A Boost for
Diplomacy as a Silver Lining?
The Outlook for the Future
Appendix: Vox Populi Events in DM and EM Since 2001
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11
22
23
25
28
31
34
40
41
43
May 2014
Vox Populi Risk: The New Politics of

the Street and the Ballot Box
Judging by the mood in global markets, the financial crisis is over. All hail the
recovery. Yet it seems like political risk features in the news every day: another
street protest; a new government collapse; a rally calling for independence; the
outbreak of civil conflict. The past 6 months have witnessed the first US federal
government shutdown in 17 years, a military takeover in Egypt, Ukraines second
revolution in a decade and the annexation of part of its territory, a recurring cycle of
protests and elections in Thailand and Turkey, the continuation of Syrias civil
conflict and the periodic eruption of tensions in the South China Sea. Meanwhile,
global markets have barely batted an eyelash and appear to be pricing the most
likely outcome: risk is either not perceived, or ignored.
Are investors justified in assuming that economic recovery will temper an otherwise
restive public mood and that super-empowered central banks will take care of the
rest, including more conventional economic risks, such as sovereign debt
sustainability in the euro area periphery, banking sector risk in the euro area
following the Asset Quality Review and the Stress Test that will report later in 2014?
Our analysis suggests that the unconcious uncoupling between geopolitical risk and
financial markets could be misplaced, as what we call Vox Populi risk a new
variation of political risk driven by shifting and more volatile public opinion has
increased markedly over the past 4 years, and is likely to continue to generate
uncertainty in the business and investment environment. Vox Populi risk is also
likely to interact with conventional economic and financial risk to create a potent and
potentially poisonous brew.
Vox Populi risk events are on the rise and
manifest themselves as: 1) election risk; 2)
flash mob democracy mass protest risk; 3)
referendum risk; and 4) geopolitical risk
According to emprical research produced by Citis Political Analysis team, (which we

believe to be the first of its kind) the yearly average number of elections, government
collapses and mass protests (Vox Populi risk events for the purposes of this study)
have increased a remarkable 54% since 2011 compared to the previous decade. We
classify Vox Populi risk events into four main categories: 1) election risk; 2) flash
mob democracy mass protest risk; 3) referendum risk; and 4) geopolitical risk. In
contrast to previous waves of political risk, which were often concentrated in lessdeveloped, lower-income countries, Vox Populi risk is manifesting itself in middleincome emerging market and industrialized countries a systemically significant
subset of sovereigns more likely to generate wider market impact.
An increase in non-mainstream
political parties.
During 2011-2014, non-mainstream political parties have seen an unprecedented

spike in support, sapping political capital from governments, prompting fragile multiparty governing coalitions and often surprising markets by producing unexpected
election outcomes. At the same time, mass protests have swept a swathe of middleincome EM democracies despite their governments having delivered a sustained
period of growth and improved living standards. Around the world, grass-roots
pressures are increasing the risk of fragmentation; social, political and even
geographical, as anti-government, anti-establishment sentiment reaches all-time
highs and trust in institutions plummets.
2014 Citigroup
May 2014
Figure 1. The Yearly Average of Elections and Mass Protests in Major Markets Has Jumped 54%
in the Post-Crisis Environment
Source: Citi Research

.driven by more vocal middle classes
Although we document a marked increase in the number of politically generated

events across EM and DM countries observing that the nature of the risk varies
slightly more vocal middle classes are a common feature. For developed
markets, Vox Populi risk is being fueled by perceptions of growing income and
wealth inequality and demands for change that often mask a desire to keep the
status quo in public resource allocation, favoring the aging and the middle class. In
emerging markets, street demonstrations are giving political expression to new
middle classes and placing increased demands on political systems and on the
capacity of state institutions to deliver key public goods and services, including
health, transportation and education, as witnessed in 2012 and 2013 in some of the
largest ever protests in Russia, Brazil, Turkey South Africa and India. For petrostates, falling petroleum prices (they havent really fallen signficantly) are leading to
an outcry for improved transparency and governance and a quest in many countries
for revenues to be more equitably distributed.
and perception of elite corruption
What triggers Vox Populi risk? A frequent catalyst is the perception of elite
corruption. Time and again, evidence of elite misbehavior has rapidly galvanized
public dissatisfaction across income groups and regions, accelerated by social
media. Yet one somewhat counter-intuitive finding in our research is that countries
that experience Vox Populi risk events, such as large street protests, do not
necessarily go on to have changes in government at the ballot box. Instead, internal
tensions may remain high without a change in leadership, but elections may bring a
weaker leader with less political capital.
2014 Citigroup
May 2014
Another dog that didnt bark, is the absence of large-scale social unrest during the
darkest days of the eurozone crisis. Although a rapid reversal of living standards is
historically associated with protests and revolutions, our analysis underscored the
fact that austerity-related protests were limited, generally failing to meet Citis
definition of a mass protest. Even the eurozone periphery countries hardest-hit by
the crisis have seen limited social unrest. This finding is consistent with our longstanding view that political risk would be expressed through the ballot box in
advanced economies, rather than on the streets. In the case of the eurozone, the
political calendar helped minimize the impact of Vox Populi risk at the most fragile
time for markets. This years European Parliament elections will be the first major
political test, and are expected to return the largest-ever results for non-mainstream
parties, and often anti-euro and anti-EU parties. Consistent with this logic, countries
where trust in institutions and the political process is lowest are most at risk of
assymetric outcomes, like revolutions and civil conflict.
Could a return to growth reverse the trend? Our findings suggest that the rise of Vox
Populi risk is linked to a convergence of factors, particularly middle class anxiety
and concerns about globalization. Indeed, improved growth prospects do not
appear to be diminishing the support for anti-establishment parties, such as the UK
Independence Party (UKIP) in an economically bouyant UK, while the influence of
the Tea Party movement in the US continues, despite periodic media attempts to
write its political obituary. If anything, a more positive growth outlook could, by
reducing the risk of protest votes bringing in a government that could damage an
already weak economy, embolden voters tempted to support non-mainstream
alternatives. When considered alongside the continuation of stubbornly high
unemployment, we believe the Vox Populi phenemenon is a structural change that
could continue to generate political uncertainty into the next election cycle, with
2015 seeing a resumption of the European national election cycle.
Market reaction to Vox Populi risk has been
remarkably calm
So how do markets respond to Vox Populi risk? The answer appears to be, with
remarkable calm, indeed hardly at all for now. There have been bursts of market
volatility in response to surprises brought on by increased political risk but investors
are treating Vox Populi as a localized rather than a globally systemic issue. For
instance, the Ukraine-Russia tensions, consistent with our view that the markets
currently only price the most likely outcome but not the risks, have resulted in a
sharp mark-down of Ukrainian assets (currency, stock market, sovereign and
corporate debt) and a significant mark-down of Russian assets. The material risk
that the conflict could spread and deepen, resulting in sectoral-level economic
sanctions against Russia and even the cut-off of gas and oil shipments from Russia
to Europe cannot be observed in any European asset prices the euro, European
stock indices or debt markets. This might reflect the palliative effect of cheap money
as central banks have come to the rescue and boosted asset prices that would
normally be hurt by higher political risk premiums. The extraordinarily low safe
yields resulting from these same policies have created a hunger for yield among
private investors that may have rendered them blind even to significant risks.
The withdrawal of cheap money could mark a return to political risk, but for now
markets are seemingly overlooking a confluence of developments that would, in a
world with less liquidity, have likely prompted greater concern. For corporations, we
think the impact from operating in a volatile political environment will be more
tangible, whether manifested through more frequent changes of government, a
more challenging legal and regulatory environment, or recurring mass protests.
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May 2014
while the economic impact has short- and

long-term components
In terms of its economic impact, Vox Populi risk fuels uncertainty, leading households
to increase precautionary savings and businesses to lower capital formation
reducing two major components of domestic aggreate demand. Reduced political
capital for leaders can mean short-term, populist policymaking, reduced willingness to
underake reforms, higher taxes and more regulation, sometimes for punitive rather
than for sound economic reasons, all of which can result in negative incentives to
work, save and invest: ultimately suppressing future growth.
On the positive side, Vox Populi risk is

boosting diplomacy
Vox Populi risk is also influencing geopolitics. One positive byproduct is a boost for
diplomacy in the case of the Syrian chemical weapons disposal agreement and
the historic first step towards a diplomatic breakthrough on Irans nuclear program
as public opinion ties leaders hands, effectively prohibiting the use of military
force. Yet a more muscular isolationism would bear wider implications for global
alliances and conflict resolution, likely affecting energy security and the nuclear nonproliferation agenda, among other things. Markets have grown accustomed to the
post-Cold War peace dividend, and history suggests markets have trouble pricing in
paradigm shifts.
Since the fall of the Berlin Wall 25 years ago, companies and investors have
operated in an environment characterized by relative stability, the erosion of
ideology as a driving force, rising integration in the global financial system and
unprecedented economic expansion. In the first post-Cold War era, politics and
security played a relatively minor role in disrupting markets and the global economy.
If Vox Populi risk continues or worsens, it could fuel a change in this trend
prompting more frequent disruptions to trade and commercial relations and
challenges to the global system a New New World Order, where the rules of the
game are under new management. But whose?
2014 Citigroup
May 2014
What Is Vox Populi Risk? Is it Really

New? How does it Work?
Vox Populi risk is the presence of shifting
and more volatile public opinion, the
pressure it places on policymakers and its
relationship to markets
The power and influence of public opinion has gained in importance and influence in
the aftermath of the global financial crisis and advent of the Arab Spring. We define
Vox Populi risk as the presence of shifting and more volatile public opinion, the
pressure it places on policymakers and, through that, its relationship to markets. Citi
1
Research first coined this concept in 2012 to identify what we observed as the
emergence of a new type of risk to the investment environment and the policymaking sphere. Examples abound, from new trends like the idea of crowd-sourcing,
to some of the largest-ever mass protests and popular demands for representative
government manifesting themselves in new regions of the world. Far from being in
retreat, democracy appears to be on the march and people power on the rise. For
better or for worse, the consequences are generating changes in national political
outcomes, as well as in the international system, with widespread implications.
Sociologist Charles Tilly has noted that, rather than being entirely separate
phenomena, these events fall along a continuum referred to as contentious
2
politics.
Trust in public institutions has declined
More globalized public expectations and the decline of the post-World War II social
contract means that constituents demand more from political leaders than ever
before yet the capacity for these leaders to deliver is limited in a slower-growth
world. Trust in elites whether business, political or media and in institutions
has declined, as noted by Edelman Public Affairs in its annual Trust Barometer. This
disconnect fuels popular discontent, especially when coupled with stagnant or
declining living standards.
But global equity indices are trading at

all-time highs
In the meantime, global equity indices trade at all-time highs. Political flare-ups can
induce short-term bursts of global market volatility, as we are seeing with the
Ukraine crisis now, but the longer-term impact has been remarkably small. This may
reflect the greater weighting of stock markets in more politically stable countries. It
may also reflect the soothing influence of the ultra-low interest rates and openended liquidity being provided by leading DM central banks, or it may simply reflect
investor complacency. They can see the local risks from increased political
tensions, but they do not yet appear to see this as part of a broader global theme
that should demand higher risk premiums across all markets.
Indeed, capital markets may inadvertently be contributing to social and political
tensions by virtue of their unconscious uncoupling. Cheap money has boosted
asset prices. This will have helped to stabilize fragile economies. However, it also
widens wealth gaps; the asset-rich have got richer. But high levels of unemployment
suggest that the trickle-down to a broader constituency has been slow.
Protest movements in the past had greater

influence in a domestic environment
How new is Vox Populi risk? To be sure, protest movements have had a significant
impact on the global landscape in the past. The civil rights and anti-Vietnam War
movements in the US in the 1960s, the labor and student movements in Europe
during 1968, and the 1989 Winds of Change that ultimately brought an end to the
Iron Curtain and Soviet Union are prominent examples. But in a less globalized
environment their influence was mainly domestic, in the US and European context,
and regional in Central and Eastern Europe.
Tina Fordham Global Political Insights: The Year of Living Dangerously Comes to a
Close, Citi Research, October 24, 2011
2
Doug McAdam, Sidney Tarrow and Charles Tilly. Dynamics of Contention. Cambridge
University Press, 2001.
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12
Todays protests are feeding upon each

other in a more global way
May 2014
Contrast these protests of the 1960s and late 1980s with the Arab Spring, where the
example of the self-immolation of a Tunisian fruit-seller sparked a wave of protests
across a region that had little recent experience with it. The USs Occupy Wall
Street movement crystallized the sentiment of We are the 99%, pitting elites
against the overwhelming majority. Two years later, across the world in Nigeria, a
plan for the removal of fuel subsidies quickly turned into a mass protest under the
banner of Occupy Nigeria. The American Occupy movement itself claimed to draw
inspiration from the Arab Spring and the Spanish Indignados movement. Although
Occupy Wall Street failed to accomplish any concrete political outcomes in the US
where it originated, its anti-establishment, anti-elite catchphrase encapsulates a
concept that has resonated with middle classes across both developed and
emerging markets.
Figure 2. The Continuum of Vox Populi Risk and Some of Its Effects
Figure 3. Fractious Politics: A Few Effects of

Vox Populi risk Over the Past Two Years
Bulgaria: Hung parliament
Finland: Anti-bailout MP's push
government's hard stand
France: Resurgent far-right Front

National
Greece: Rise of hard-left and neo-Fascist

parties
Italy: Hung parliament

Spain: Catalan secessionist movements
UK: Push for Scottish independence and
in-out EU referendum
US: First government shutdown in 17

years, aborted Syria intervention
2014 Citigroup
Even leaders swept into office on the back of a popular mandate may find
themselves on the wrong side of public opinion very quickly, as post-revolutionary
Egyptian President Mohammed Morsi learned. One consequence has been the
emergence of shorter-tenured governments with reduced room for policy maneuver,
and even the handover of power to non-elected technocrats. One such example
was European Commissioner Mario Montis brief tenure as Italian prime minister; he
has been followed by two more unelected premiers, Enrico Letta and Matteo Renzi.
Across the developed world, elected leaders are hamstrung by ever-shorter
honeymoon periods, roller-coaster public approval ratings, legislative gridlock,
fractious political party systems, and austerity budgets.
May 2014
Figure 4. The Mechanism of Vox Populi Risk
These developments are also taking place between election cycles, underscoring
how in an environment of popular discontent, disgruntled publics may not be willing
to wait years for new elections before they demand the opportunity to make their
views known. Where elections occur, they more frequently result in fragmented
outcomes, such as multi-party coalitions, as in the UK in 2011 (the first coalition
government in Britain since 1974) and hung parliaments, as in Italy and Bulgaria in
2013.
Figure 5. After Decades of International Convergence, Fragmentation?
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May 2014
The Empirical Basis for Vox Populi Risk

To quantify the effect of Vox Populi risk, we examined the elections, mass
demonstrations and other political events in the countries that make up the MSCI
Developed Markets and Emerging Markets universes. We classified these as Vox
Populi risk (VPR) events.
VPR events in our analysis had more or less political impact depending on the
presence of key characteristics that may combine to produce a market-moving
surprise. These include mass protests in multiple cities, the presence of violence, a
failed election or hung parliament, the rise of new political actors or NEAPs, and
secessionist or territorial claims. The presence of two or more of these factors could
be considered a high-VPR event, the presence of one a mid-range VPR event, and
the lack of any a low-VPR event.
Of the 69 Vox Populi risk events that we
identified, 43 had limited political impact as
most were regularly scheduled elections
with expected outcomes
We noted 69 such events between 2011 and April 2014, though most (43 of 69, or
62%) had limited political impact. In general, these were regularly scheduled elections
where incumbents were successful or where the election's outcome was largely
expected. Typical in this group is the Singapore election in 2011. Nine events had a
particularly destabilizing impact on political trends. In general, these large-scale
events involve coup dtats, massive protests, snap elections resulting in hung
parliaments, or conflicts where opposing parties disputed the basic nature of the state
(i.e., pro-/anti-democracy or secessionist movements). Within this group are the
Greek election of May 2012, Turkeys Gezi Park protests, and the Egyptian military
intervention that removed Mohammed Morsi. The final 17 had an intermediate political
impact, like the South African labor protests and the rise of NEAPs in Finnish and
Austrian elections. These tended to be mass protests that didn't have a significant
policy impact or elections where populist parties made notable gains.
Events that impacted global politics the

most were ones that were a surprise to
the markets or involved irreconcilable fights
between elite groups
What characterized the Vox Populi risk events that most affected global politics?
First, these political events came as a surprise to markets on account of a sudden
election, a hung parliament, or a rapid descent into protest. Even where our political
analysis anticipated risks or polling data may have been predictive, markets were
often caught unaware. Second, many of the most serious events involved
irreconcilable disputes between elite groups over the basic nature of the state:
whether between democracy and authoritarianism, between opposing social bases,
or as part of center-regional tensions.
The element of surprise. Consistent with a broad academic literature on market
price action, the highest-impact Vox Populi risk events come as surprises. In
general, this means an unscheduled election or government collapse, a
spontaneous/unexpected mass demonstration, or an election that ended in a
surprise result or hung parliament. Snap elections are an outcome limited to
parliamentary democracies, meaning these systems may represent
disproportionate political risk in times of economic stress. All of our high-VPR
events were unscheduled, as were 14 of the 17 mid-impact VPR events. LowVPR events were scheduled and predictable 29 of 43 times.
Irreconcilable elites. Thirteen VPR events could be said to revolve around the
basic nature of the state, meaning they were pro-representative government in

the case of an authoritarian regime, or a coup dtat or secession movement.
This included five of the nine high-VPR events, including a revolution in Egypt,
the Russian intervention in Crimea, and mass protest in Thailand. The five midor-low VPR events include pro-democracy protests in China, and student and
farmer protests seen to be related to the FARC insurgency in Colombia.
2014 Citigroup
May 2014
Little impact from the effects of GDP growth,

austerity policies, government corruption or
violence
What didnt affect global politics? Contrary to the popular narratives of what may be
driving contemporary social unrest, we found limited evidence of the effects of GDP
growth or austerity policies or violence. While all of these variables are represented
at least in some respect, no strong patterns or relationships are apparent in DM or
EM markets.
GDP per capita. GDP per capita was lower in high-VPR countries (mean
$14,100, median $11,600) and higher in low-VPR countries (mean $25,700,

median $12,700). All three groups had a broad distribution of incomes, however.
In the high-VPR group, we found countries such as Egypt and Brazil but also
Italy and Greece. The low-VPR group included Norway, the US and Taiwan, but
also Colombia, China and Mexico.
Austerity as a risk factor. Fifteen of the 69 events revolved around austerity as
a key factor. Most of these were in Europe, where austerity has dominated the
public debate. This includes four of the nine high-VPR events, but it also includes
low-risk European elections and mid-risk European protests.
Corruption as a catalyst. Eleven events explicitly involved state corruption as a
motivation for discontent. Only two were high-VPR (Brazil and Italy). The rest
were a mix of mass protests (in Brazil or China) or elections called in the midst of
corruption scandals (in Finland, Austria and the Czech Republic).
Violence. Comparatively few events in the dataset could be characterized as
violent: eight of 69. This group included Egypt, Brazil, Turkey, Greece and South
Africa, as well as Russias involvement in the Crimea. These were the only
events that had any reported deaths. Most deaths were in Egypt (over 2,200 in
both events); only South Africa and Russia had more than 10 reported deaths (40
in Marikana, 80 in Ukraine). Nevertheless, political science literature suggests
that when the majority of the public regards demonstrators as having a legitimate
grievance, the deaths of protestors can often galvanize public support in their
favor often to the detriment of incumbent governments.
Surprise and Vox Populi has been a
driver of short-term volatility
2014 Citigroup
Related to the element of surprise, Vox Populi risk has been a key driver of shortterm volatility. Looking at the largest single-day moves in the VIX over the past five
years, half were due to political- or policy-driven events. Notable political event risks
over 2013 that have moved markets include the consequences of elections and
riots of the type in our Vox Populi risk event dataset. Also included were marketrelated public statements by US President Barack Obama (Figure 6).
15
16
May 2014
Figure 6. Liquidity Aside, Politics Still Matters. Many Of The Top One-Day VIX Moves Since QE
Began Correspond to Political Events.
Date
2/25/2013
8/8/2011
8/4/2011
5/6/2010
4/27/2010
1/28/2011
5/7/2010
10/30/2009
1/22/2010
1/24/2014
1/21/2010
3/16/2011
%Change %Change
in VIX
in S&P
38.7%
-1.83%
30.1%
-6.59%
28.9%
-4.77%
26.7%
25.8%
25.7%
25.0%
23.9%
22.6%
21.3%
19.8%
19.3%
-3.11%
-2.17%
-1.79%
-1.43%
-2.74%
-2.13%
-2.01%
-1.95%
-1.76%
Political Events
Italian election
US downgrade
Tahrir Square
UK election, Greece riots
Financial/Macro Events
ECB, BoJ actions,

slowdown fears
Flash crash
Greece downgrade
Japan downgrade
End of month
US policy uncertainty, Fed

China fears, US earnings miss
Obama calls for bank regulations
US housing data,
Fukushima disaster continues
3/1/2011
19.2%
-1.68%
Libyan civil war
2/20/2013
19.2%
-1.24%
Fed communication
Source: Chicago Board of Exchange, Bloomberg, Associated Press, CNN Money.com. Citi Research
Social Media Fuels Flash Mob Democracy, but Doesnt

Guarantee Political Transformation
Advances in social media and the Internet
have driven the speed of contemporary
mass protest and ease of organizing
large crowds
Why is public opinion more globalized and faster moving than in the past? Although
technology enables protests, rather than being a casual factor, advances in social
media and communications technology have driven the seemingly instantaneous
nature of contemporary mass protest. Protests in Egypt, Brazil and Turkey were
organized online, as was the Occupy Wall Street movement. These tactics have
been copied and re-interpreted around the world. Episodes of what we call flash
mob democracy can appear overnight and rapidly multiply across cities, towns and
regions, placing significant pressure on government elites. Skyrocketing Internet
penetration in the past five years suggests the trend is likely to intensify. This allows
would-be revolutionaries to organize in multiple cities around a whole country in
days or even hours.
The rise of the internet has been rapid

in emerging markets
India has seen over 100 million more Internet users gain access to the Internet, a
possible factor in its election this year. Even in smaller countries, the impact can be
significant. Ukraines Internet penetration increased from roughly 3 million up to 9
million people, representing a 515% jump from 2007 to 2012. China, in the same
five-year period, gained an amazing 360 million more Internet users. This rapid
increase leads to an obvious question: as Chinas economy becomes more
globalized and its population more connected, could it, too, see a rise in protest
activity similar to other EM countries with large, emerging middle class populations?
2014 Citigroup
May 2014
17
Figure 7. Internet Penetration Skyrocketed Between 2007 and 2012, With the Addition of 360 Million New Users in China Alone.
500
450
450
400
400
300
248
250
189
200
150
100
2007
Developed Markets
2008
2009
2010
2011
Ukraine
India
350
300
Egypt
250
China
200
116
150
2012
100 100
2007
2008
Brazil
2009
2010
2011
515
318
275
264
161
2012
600
Internet Penetration (Nominal, Millions)
500
350
Nominal Internet Penetration

(Millions of Persons)
Index Increase in Internet Penetration
550
(Index 2007=100)
(Index 2007=100)
Index Increase in Internet Penetration
550
571
2007
2012
500
400
300
200
211
156
99
100
46
59
India
Brazil
12
China
36
20 33
3 15
Egypt Turkey Ukraine
Source: World Bank, Citi Research

Although quicker to organize, Internetinspired protests dont always convert into
concrete political outcomes
Though the potential for online protests to generate short-term instability is high, the
recent rash of large-scale EM protests has generally failed to translate into changes
of government or even policy. What accounts for this? Part of the explanation lies in
the fact that Internet-led protests, although they can be organized quickly and
benefit from their ability to produce a sense of safety in numbers, usually lack the
societal networks and leadership necessary to focus such popular discontent and
convert it into concrete political outcomes. The absence of a significant benefit to
Turkeys opposition parties as a result of the Gezi Park protests highlights the
increasingly decentralized nature of protest activity. Traditionally, successful political
movements drew their organizational support from civil society, vanguard political
parties, universities or a religious institution. Without the establishment of such
networks, these outbursts of popular discontent may fizzle with little concrete
political impact, with the most significant collateral damage coming in the form of
dented approval ratings and reduced political capital for incumbents, rather
than regime change.
Vox Populi, with the help of social media, create many more veto groups that can
eliminate individual components of a program, often making what is left incoherent
and unworkable. At the same time, it can also significantly lower the cost of lobbying
to remove an unpopular policy. That is particularly true for fiscal austerity and
structural reform where there are often a significant number of losers. Is it
emasculating representative democracy with its capacity to reach compromises
across issues and time? There is no invisible hand of the flash mob that ensures
that the uncoordinated actions of single-issue movements produce a set of policies
and administrative actions that make sense. If anything, the overarching trend is
one of fragmentation rather than a groundswell of support in favor of a particular
political agenda. One possible, and notable exception, is regulation and taxation,
particularly of unpopular industries.
2014 Citigroup
18
May 2014
Vox Populi and Macroeconomics:

Uncertainty Curbs Growth
Economic drag is seen with coups dtat
but also in the short-term with Vox Populi
events and longer long-run growth is also
expected to suffer
Jay Ulfelder, scholar of democratic transitions and prediction, found that coups dtat
typically result in a 2% economic drag on the affected countries during the year of the
intervention, and then another 1-2% the following year before returning to trend. This
3
could be called the coup output gap? By extension, could mass protests and
prolonged periods of heightened political uncertainty produce a similar decline in GDP
figures? With this in mind, we expect not just the short-term negative effects on GDP
forecasts that Ulfelder discusses, mainly driven by domestic aggregate demand but
we should also expect lower long-run growth because of bad policies, clientelism and
a neglect of incentives to work, save and invest.
Greater uncertainty leads to household

savings and a domestic demand
One of the oldest observations about household and firm decision-making under
times of uncertainty is that greater uncertainty increases precautionary savings
(thus reducing consumption demand) and, by raising the option value of waiting to
find out how the uncertainty will be resolved, lowers capital formation. This means
the two main components of domestic demand (accounting often for 80% of
domestic demand or more) are adversely affected by the greater uncertainty
4
created by Vox Populi risk.
More generally, there is a wider economic impact from Vox Populi risk beyond asset
prices. There are many important business decisions and economic policy decisions
that are not directly or visibly driven by liquid financial markets. For example, the
impact of Ukrainian VPR and the subsequent Russian involvement in Crimea will
have important consequences for European investment in the infrastructure of
reduced energy import dependence from Russia. This means more investment in
transportation, shipment and storage facilities for gas (including LNG), coal, oil and
uranium. It means greater investment in the electric power transmission grid,
integrating the Baltics into the wider EU high-tension electric power transmission grid.
.and is also a deterrent to capital

expenditure
Greater political risk, including VPR, is a deterrent to capital expenditure in the

countries where it occurs, even if these countries dont have well-developed liquid
and deep financial asset markets. Inward foreign direct investment in VPR-afflicted
countries like Thailand and Ukraine is bound to suffer. Any economic action that is
costly or even impossible to reverse, like engaging in greenfield investment in a
factory or storage facility, is likely to be discouraged by VPR. Business decisions
with a 30-year horizon, like exploration for natural resources or capital expenditure
on extraction, transportation and storage facilities, are likely to be put on hold until
VPR is resolved.
Although most of the outstanding stock of equity is traded in the markets of a limited
number of advanced economies, most physical capital expenditure now occurs in
emerging markets. In addition, although the US now accounts for 49% of stock
market valuations and Europe for another 25%, a significant part of the future
stream of profits and earnings priced in these markets are generated by real
economic activity in emerging markets whose local stock markets are often small,
illiquid and not systemically important.
Jay Ulfelder. Coups Slow Economic Growth. Jay Ulfelder blog. July 11, 2013.
William Lee. Policy Uncertainty and Investment - How Much Lower Must Real Interest Rates
Go? Citi Research. February 3, 2014
4
2014 Citigroup
19
May 2014
Both Thailand and Egypt saw immediate

drops in economic forecasts following
VPR events
In our analysis, we noted immediate drops in the GDP forecast for countries which
experience high Vox Populi risk events. Following the December 2013 unrest in
Thailand, Citis GDP forecast dropped materially the next month and continued to
drop. The same happened in Egypt after the July 2013 military intervention, though
the Gulf States attempts to shore Egypts current reserves helped stem the fall.
Figure 8. Major Vox Populi Events Caused Citi GDP Forecasts To Drop Materially
Citi GDP Forecasts After Vox Populi Event

5.0%
Thailand, Dec. 2013

4.0%
3.0%
Egypt , July 2013
2.0%
1.0%
-4
-3
-2
-1
Month Of
+1
+2
Source: Citi Research. Data reflects 2014 GDP forecast before and after the Thailand unrest of December 2013
and the Egyptian military intervention of July 2013.
Vox Populi and Macroeconomics: Income Inequality Fuels

Political Economy of Discontent
Middle class anxiety from growing
income and wealth inequality is a driver
of Vox Populi
2014 Citigroup
Perceptions of growing income and wealth inequality are increasingly regarded as

being at the heart of middle class discontent. This discontent has been exacerbated
by the financial crisis and the subsequent rollback in middle class living standards,
the first in decades in some countries. In the US, real wages have been stagnant for
over a decade. Polling data has shown that populations across DM and EM
countries are experiencing significant middle class anxiety. In 2013, for example,
Pew reported a majority believing their children will be worse off financially than
they are themselves. In many instances, such as the US, this represented a
historical change in trend. In France, this majority was 90%, and in Japan, 78%.
20
May 2014
Figure 9. Middle Class Anxiety: Large Numbers Across Major Markets Believe Their Children
Will Fare Worse Than Themselves
When children today in (country) grow up, do you think they will be better off or worse off
financially than their parents? Worse off
Developed Markets
90%
France
76%
74%
73%
65%
64%
64%
62%
53%
Japan
United Kingdom
Italy
Spain
Germany
Canada
United States
Australia
27%
Israel
0%
20%
40%
60%
80% 100%
Emerging Markets
Greece
Poland
Czech Republic
Turkey
Egypt
South Africa
Mexico
South Korea
Philippines
Indonesia
Russia
Brazil
Chile
Malaysia
China
43%
42%
40%
39%
37%
29%
25%
24%
18%
13%
12%
7%
0%
20%
40%
67%
61%
58%
60%
80% 100%
Source: Pew Research Global Attitudes Project, Citi Research. Surveys conducted March-April 2013, margins of
error ranging +/- 3.3-7.7%.
Global inequality across countries has
decreased, but within individual societies,
it has shot up
Thanks to rapid EM growth, global income inequality across countries has

decreased significantly and indeed the Gini coefficient has declined since the
beginning of the century. Yet within individual societies that is, the national,
regional or local communities that define peoples reference groups and
benchmarks against which they measure their personal material well-being
inequality has skyrocketed. Globalization has raised worldwide incomes, removing
the focus from poverty reduction. For the first time in the studys eight-year history,
the 2012 World Economic Forum (WEF) Global Risks report identified income
inequality as the most likely global risk for the next 10 years. A WEF expert survey
suggested that inequality was connected to more than 40 global challenges studied,
exceeding state failure, corruption, and climate change in perceived significance.
However, parents fearing their children will be worse off than they are is not fear of
inequality per se. Rather, we think it should be interpreted as anxiety that the
system is changing in a way that people have less faith that the path to prosperity,
and the opportunities it affords, will be as open to their children as it was to
themselves. This decline in optimism, if sustained, could strengthen demands for
social safety nets and reduce incentives for advanced education and other choices.
Even if all children were expected to be equally poor, the parents would still care.
Regardless, concerns about income inequality have been at the core of some of the
most high-profile examples of Vox Populi risk in DM, including Occupy Wall Street in
the US and the Indignados protests in Spain. Both movements were profoundly
middle class protests, galvanizing protestors against the rollback of the social safety
net and rising youth unemployment. So far, no significant political actor has been
able to capitalize upon this anxiety, but it represents fertile ground for aspiring
political upstarts.
Generational inequality is also on the rise

but hasnt been captured well yet
2014 Citigroup
The pain of the financial crisis and its aftermath has been borne overwhelmingly by
the young. In the US, Social Security and Medicare benefits are sacred cows. In
Europe, where long-term contracts with benefits, rights and entitlements, including
last-in first-out severance rules and other seniority features are held
disproportionately by the older workers, with the young making do with so-called
flexible contracts, which are often not materially different from the day laborer
arrangements of the past. But this inter-generational disparity is not captured well
by the snapshot Gini coefficients for income or wealth.
May 2014
21
The worsening employment situation has intensified the risk

of social unrest.
INTERNATIONAL LABOR ORGANIZATION
Income inequality is driving partisan

polarization in government
The impact from income inequality may not be limited to street protests. American
political scientists have observed that income inequality is highly correlated with the
rise of partisan polarization in the US Congress. Income inequality may be fuelling a
political economy of policy elites who are operating within an environment of
seemingly irreconcilable differences.
Figure 10. Partisan Polarization in the US Has Risen Along with Income Inequality in a Highly
Correlated Way
1.1
Partisan Polarization in the

US Congress & Income Inequality
1
Polarization
0.9
0.8
0.500
0.480
0.460
House r = 0.96
Senate r= 0.84
0.440
0.420
0.7
0.400
0.6
0.380
0.5
0.4
0.3
Senate Polarization
Gini Coefficient
0.360
0.340
0.320
0.300
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
0.2
House Polarization
Source: Poole and Rosenthal/Polarized America, Federal Reserve Bank of St. Louis FRED, Citi Research
2014 Citigroup
Gini Coefficient
1.2
22
May 2014
Vox Populi Risk in Developed

Markets: Discontent is Anti-Reform,
and Mind the Generation Gap
The struggle for limited state resources
fuels polarization, gridlock and aversion
to structural reform
In a cycle of deleveraging, the interests of creditors and debtors in society are

opposed in a zero-sum game. Todays political battle lines are drawn over the
allocation of state resources rather than ideology. The conflict can be negative-sum
if the fight over the distribution of the rents destroys some or most of these rents.
Such divided interests fuel polarization, gridlock and aversion to structural reform.
There are demands for change, but typically citizens seek to maintain the status
quo for themselves.
DM leader approval ratings continue to

plummet as middle classes constitute
an anti-reform bulwark
Developed market (DM) middle classes now often constitute an anti-reform bulwark,
punishing austerity-budget incumbents in the voting booth. The UK think tank Policy
Network noted the fact that the middle classes are the beneficiaries of the prior
fiscal order, which makes pensions and welfare payments to old cohorts practically
5
untouchable.
In the US, budget cuts have fallen almost exclusively on the young, with
entitlements such as Social Security and Medicare largely untouched. The fact that
older voters now in many countries outnumber younger voters (with older voters
generally more likely to vote than younger voters) reinforces the bias in public
sector resource allocations in favor of aging populations. With governments a major
employer of the middle class, public sector reform may constitute a third-rail of postcrisis politics. As traditional mainstream parties implicate themselves in the reform
process, the risk increases that must-win middle class voters reject them and turn
increasingly to unconventional political alternatives. In this environment, job
approval for most DM leaders has stopped or stayed low over the past two years
Angela Merkel being the most notable exception.
Figure 11. Public Approval for Major DM Leaders Has Dropped Or At Relatively Low Levels Over the Two Years
55%
Barack Obama
55%
55%
Francois Hollande
50%
50%
45%
45%
40%
40%
35%
35%
30%
30%
25%
25%
25%
20%
20%
20%
David Cameron
50%
45%
40%
35%
30%
15%
Nov-12
Mar-13
Jul-13
Nov-13
Mar-14
15%
Nov-12
Mar-13
Jul-13
Nov-13
Mar-14
15%
Nov-12
Mar-13
Jul-13
Nov-13
Mar-14
Source: Pollster.com/The Huffington Post, Electionista, Sondage-en-france.fr, YouGov UK, Citi Research
Patrick Diamond and Guy Lodge. "European Welfare States After the Crisis: Changing Public
Attitudes." Policy Network, January 2013.
2014 Citigroup
May 2014
23
This begs the question: for how long can the old out-vote the young before the
dynamic shifts? Inter-generational tensions were a major factor in the 2013 Italian
election result that produced a hung parliament where no political party was able to
gain an absolute majority of seats. What prevents this tension from being a more
significant factor is likely to be the apathy of younger voters, who typically score low
on political participation, forfeiting their power at the ballot box and maintaining the
electoral primacy of baby boomer voters. Could a catalyst emerge that galvanizes
youth voters and sees them engage in the political process? So far, the issue
capable of inspiring this change is not apparent.
Rise of the NEAPs

A byproduct of the erosion of the post-War political order is that mainstream political
actors have been joined on the scene by new players. Our term for these new
political parties, which span the political spectrum, is NEAPs, or new, extreme or
alternative parties. As a rule, these movements and political parties are antiestablishment, and, in the European context, euroskeptic. Some represent single
issues or simply a generalized anti-orientation, rather than the broad platforms that
could draw in a wider coalition. When NEAPs attack the mainstream parties from
their right and left flanks, mainstream parties are likely to adopt some NEAP policy
positions as they try to maintain their constituencies, in a sort of political crossdressing. Thus, even if not elected to lead governments, NEAPs are having a
significant influence on the policy debate. UK Prime Minister David Cameron has
placed an in-out referendum on British membership in the European Union (slated
for 2017) at the center of the national debate, over the objections of large segments
of his own party and mainstream British business interests, in an effort to stem the
rise of the euroskeptic UK Independence Party (UKIP). UKIP is draining support
from Conservatives heading into May 2014 European Parliamentary elections, and
even has some Tories worried about the 2015 UK general elections.
Figure 12. Challenges to Mainstream Political Parties and the Rise of

Euroskeptic or Anti-Establishment NEAPs
Country
Austria
Belgium
Party(ies)
Freedom Party
Country
Japan
NEOS
Team Stronach
Vlaams Belang
Attack
Latvia
Lithuania
Czech Republic ANO

Usvit
Denmark
People's Party/DF
Red-Green Alliance
Finland
The Finns
France
Front National
Germany
Afd
Pirate Party
Greece
ANEL
Luxembourg
Party(ies)
Japan Restoration
Association
National Alliance
Order and Justice
Way of Courage
ADR
The Left
Freedom Party
Reformed Party
Socialist Party
Poland
Solidarna Polska
Your Movement
Portugal
Left Bloc
Slovakia
Slovak National Party
Spain
Secessionist & nationalist
parties
Golden Dawn
United Left
Syriza
Sweden
Left Party
Hungary
Jobbik
Sweden
Sweden Democrats
India
Aad Aadmi Party
United Kingdom Respect
Ireland
Sinn Fein
UK Independence Party
United Left Alliance United States
Tea Party movement
Italy
Five Star Movement
2014 Citigroup
Netherlands
Figure 13. In European National Parliaments, NEAP Parliamentarians

Have Tripled Since The Crisis Began
12%
EU Parliamentarians Representing
Euroskeptic Parties
New, extreme or alternative parties are on

the rise and represent an anti orientation
703
10%
8%
6%
4%
225
2%
0%
2008
2009
2010
2011
2012
2013
2014
24
The NEAPs trend is particularly

pronounced in Europe
May 2014
The NEAPs trend is particularly pronounced in the EU, though far from exclusive to
it. By our calculations, the number of European Union parliamentarians representing
euroskeptic parties at the national level has tripled since 2011 to over 700, or
around 10%, out of ~7,200 members. These new movements have won seats in 21
of the 28 EU national parliaments. The largest include Italys Five Star Movement,
which won a surprising 25% of the vote in 2013 elections, as well as Greeces
Syriza, Polands Palikot Movement and Hungarys Jobbik. We expect that a
significant number of NEAP members will enter local government and the European
Parliament over the coming year.
In the Netherlands Geert Wilders and his Freedom Party have announced plans to
create a bloc that would bring together euroskeptic and anti-immigrant parties after
2014s European Parliament elections, potentially joining with Frances National
Front. A large euroskeptic bloc in the European Parliament could further inhibit
progress toward the integration and reforms at the EA and EU levels that are
necessary for further political and fiscal integration. Having said that, we note that
anti-parties may struggle to work together toward a shared political objective.
Indeed, in the run up to the European Parliament elections, many have been at
pains to declare their unwillingness to collaborate with parties they fear will tarnish
their brand, particularly where there may be perceived concerns of xenophobia.
Even the notable performance by NEAPs in European Parliamentary elections this
year may not necessarily translate into a concrete policy agenda; instead, they may
act as spoilers, slowing the machinery of policymaking. A possible exception may be
in the area of further regulation and on curbs to immigration; among the few areas
where the antis find common cause.
Anti-establishment forces havent arisen merely from center-right or anti-system
positions. The populist Left may be resurgent as well, directly positioning itself to
speak to the issue of income inequality. New proposals for minimum wage hikes
have made headlines in the US, and in Germany was even a key plank of the
incoming grand coalitions governing agreement. In 2015, Switzerland will hold a
referendum on a basic income program for all citizens, though its worth noting that
Swiss voters rejected a plan to cap executive pay as late as March 2013. The
potential policy impact in DM is considerable as evidenced by most legislatures
having enacted or are considering new regulation that focus on anti-financial
services legislation, CEO pay, wealth taxes, minimum wage increases, and
restrictions both on new immigration and on the rights of old and new immigrants.
Not all of these new groups are specific responses to the post-crisis politics of
austerity and bailout demands. Polands Your Movement, for example, drew together
liberal, anti-clerical, and anti-establishment opinion at a moment when the countrys
center-right-leaning political party spectrum offered no serious leftist alternatives.
Outside Europe but within this anti-establishment category could include the Tea Party
movement in the United States and Japans Restoration Party. But in our view, all
reflect dissatisfaction with the longstanding mainstream parties that have dominated
the post-War political system in developed democracies, and a demand for political
alternatives that is not strictly a consequence of economic factors.
2014 Citigroup
May 2014
Figure 14. Referendum Risk: Centrifugal Forces Increase Uncertainty, But Will They Change the
Status Quo?
Referendum Risk: How European Votes May Surprise

Markets and Lead to Policy Uncertainty
A number of governments are struggling
with regionalism, secessionism and a
drive for the return of sovereignty
Against this backdrop of discontent and mistrust for institutions, several DM

governments are struggling with regionalism, secessionism and a drive for the return
of sovereignty. Even a failed vote may set the stage for a market-moving surprise in
Europe, in what we call referendum risk. Both Scotland and Catalonia plan to hold
independence referendums in 2014, and in 2017 the UK is due to hold an in-out
referendum on EU membership. Though none of these ballots are expected to
translate into victories, they add to the sense of political uncertainty and
fragmentation, weighing on confidence and sentiment.
Surprise outcomes could have immediate market impacts or wide-ranging policy
consequences. First, the result of an election might in and of itself surprise
investors. Second, national governments attempts to outmaneuver public opinion
may lead to negative policy consequences. With this in mind, we view referendum
risk as a new and potentially potent form of Vox Populi risk, as a retreat to
nationalism and localism becomes a powerful popular response to globalization.
Switzerland immigration controls (February 2014). On February 9, 2014 Swiss
voters narrowly approved (50.3% to 49.7%) a referendum to restrict immigration

from the EU. This vote was seen as contrary to EU-Swiss bilateral treaties
guaranteeing freedom of movement as part of Switzerlands membership in the
Schengen Zone, and the Swiss government will now have to enact legislation
implementing the referendums results. Though the vote had limited impact on
Swiss capital markets, many of Europes euroskeptic and anti-immigrant politicians
6
are seeking to build support now that the issue has gained prominence. With this
in mind, national leaders may attempt to counteract or co-opt these parties
positions, with unforeseen consequences for medium-term European integration.
Scottish independence (September 2014). The Scottish National Party-led
government in Edinburgh has scheduled a referendum on independence from the

UK on September 18. The referendum is expected to fail. By the end of February,
for example, 48 opinion polls held in Scotland have shown the No side up by at
least seven points or more. Only one survey has shown the Yes side closer and
that was commissioned by the SNP. Even so, the possibility of a UK breakup has
generated political uncertainty within the country and confusion abroad. British and
European policymakers have spoken out strongly against the likelihood that an
independent Scotland can stay within the EU and the sterling currency zone.
Giada Giani et al. Euro Economics Weekly - Could Eurozone Politics Return to the Fore? Citi
Research. February 14, 2014.
2014 Citigroup
25
26
May 2014
Catalonian independence (due in November 2014). Catalonia, one of Spains
regional economic powerhouses, has long had an active separatist movement, and
its support has grown as Catalans associate the central government in Madrid with
austerity, unemployment and waste, in addition to long-standing complaints about
net budgetary transfers from Catalonia to the rest of Spain. Regional elections in
November 2012 were largely fought on the independence issue, and prosovereignty Catalan President Artur Mas took his victory as a mandate to proceed
with a referendum. A favorable vote for independence, scheduled for November 9
(but likely postponed after a recent constitutional court ruling) would come as a
surprise to markets today, as the Spanish government has vowed to block it as
unconstitutional and therefore illegal, since under the Spanish constitution only the
central government can call a referendum. When Citi Research last considered the
issue, our European Economists expected the loss of Catalan-based government
revenue to cause a significant negative fiscal impact for the Spanish sovereign in
7
the short term. At the time, our forecast for Spains 2012 fiscal deficit was at 7.1%
of GDP. Today our 2015 deficit forecast is an improved 4.8%, but the basic
argument still applies.
Brexit in 2017. In perhaps the most extreme case of referendum risk currently
on the political horizon, growing euroskepticism in the United Kingdom has

culminated in the proposal for an in-out referendum on Britains EU membership.
Prime Minister David Cameron has suggested that, were the government to be
re-elected in 2015, he would call for such a vote to take place in 2017. Brexit
would have a significant impact on the economic and business environment;
whats more, polls are in favor of secession, were the vote to take place. In
January 2013, Citi United Kingdom Economists wrote, EU exit would be a major
economic negative for the UK, damaging the UKs ability to attract foreign direct
8
investment (FDI) in globally traded goods and services industries.
Ebrahim Rahbari and Antonio Montilla. Elections In Catalonia: Down The Path Of TwoSpeed Spain. Citi Research. November 23, 2012.
8
Michael Saunders and Ann OKelly. UK Economics Weekly - Brexit Could It Happen?
Would it Matter? Citi Research. January 18, 2013.
2014 Citigroup
May 2014
In Focus: Referendum Risk: Secession Votes More Likely to Fail than Pass, Other than in the Post-Communist
Countries
In the modern era, referendum votes are more likely to fail than pass,
unless the country is post-colonial or post-Communist. Indeed, only
three new states have come into existence that werent the result of an
explicit European decolonization process or a Communist collapse
since 1974, and all these were a product of a United Nations process.
Post-colonial and post-Communist. Of the 29 independence votes
conducted by decolonized or post-Communist nations, only two failed to
pass: a 1967 vote in Djibouti, then called French Somaliland, and a 1992
vote in Montenegro. Both countries later conducted favorable secession
referenda.
Little luck in Europe and North America. Fourteen independence votes
have been held in the West since World War II, but only one (Iceland)
resulted in the creation of an independent state. The Faroe Islands
(Denmark) and Newfoundland (United Kingdom) also voted to secede, but
the Danish parliament overturned the Faroese vote and Newfoundland later
decided to join Canada. Most secession ballots have been unsuccessful,
most notably in Quebec (Canada) and Puerto Rico (United States).
Quebec. The Canadian province of Quebec has held two sovereignty votes,
one in 1980 and one in 1995. The 1980 vote was a clear loss for the
sovereignty movement, 60% No to 40% Yes. But the 1995 vote shocked
Canadians by its much closer result. The pro-sovereignty position started
strongly and was expected to win, but a vigorous campaign by the proCanada side and the promise of concessions by Prime Minister Jean
Chretien closed the gap and the vote failed, 51% to 49%.
Puerto Rico. The American territory of Puerto Rico has held four status
votes since 1967, the most recent in 2012. Island politics revolve around the
status issue, and Puerto Rican politicians divide themselves into pro-status
quo and pro-statehood political parties, rather than the mainland Republicans
and Democrats. The independence option has never won more than 6% of
the vote over four ballots.
Czechoslovakia. The other most notable Western split, Czechoslovakia in
1992, was conducted by the Czechoslovak parliament without reference to a
popular vote. At the time, the Slovak National Assembly in Bratislava had
already issued a declaration of independence. Even though opinion polling
suggested that the electorate would oppose the move, the federation
parliament in Prague brokered a deal between the Czech and Slovak
leadership and the break was effected at the end of the year.
Post-Communist and post-Soviet. Between 1990 and 1992, nine of the
fifteen constituent republics of the Soviet Union and five of the six divisions of
Yugoslavia held independence votes. Fifteen of the sixteen votes passed,
with the aforementioned exception of Montenegro. The breakaway regions of
Nagorno-Karabakh (Azerbaijan), South Ossetia (Georgia) and Transnistria
(Moldova) have also held votes, but none have been internationally
recognized.
Three new nations, but birthed under UN supervision. Starting in 1993,
Eritrea, East Timor and South Sudan all conducted successful independence
votes following civil wars or invasion. All of these votes were conducted
under the auspices or supervision of the United Nations. Somaliland also
declared independence in 2001 and has operated as an autonomous
republic in the Horn of Africa without international recognition since that time.
Figure 15. In Fifty-Four (54) Independence Votes Since WWII, Few Have Passed Outside Post-Colonial and Post-Soviet Spheres
Decolonization & Trusteeship
Country
Year
Result
Mongolia
1945
Passed
Cambodia
1955
Passed
Guinea
1958
Passed
Algeria
1961
Passed
Jamaica
1961
Passed
Samoa
1961
Passed
Malta
1964
Passed
Rhodesia
1964
Passed
Djibouti
1967
Failed
Comoros
1974
Passed
Micronesia
1975
Passed
Djibouti
1977
Passed
Palau
1993
Passed
12 of 13
(92%)
Post-Communist Independence
Europe & North America
New States
Country
Year
Result Country
Year
Result Country
Year
Result
Slovenia
1990
Passed Iceland
1944
Passed New Caledonia
1987
Failed
Armenia
1991
Passed Faroe Islands
1946
Passed Eritrea
1993 Passed
Azerbaijan
1991
Passed Newfoundland
1948
Passed East Timor
1999 Passed
Croatia
1991
Passed Saarland
1955
Failed
Somaliland
2001 Passed
Estonia
1991
Passed Puerto Rico
1967
Failed
South Sudan
2011 Passed
Georgia
1991
Passed Aruba
1977
Failed
4 of 5
Kosovo
1991
Passed Nevis
1977
Failed
(80%)
Latvia
1991
Passed Quebec
1980
Failed
Lithuania
1991
Passed Puerto Rico
1993
Failed
Post-Soviet Breakaways
Macedonia
1991
Passed Quebec
1995
Failed
Country
Year
Result
Turkmenistan
1991
Passed Bermuda
1995
Failed
Nagorno-Karabakh 1991 Passed
Ukraine
1991
Passed Nevis
1998
Failed
South Ossetia
1991 Passed
Uzbekistan
1991
Passed Puerto Rico
1998
Failed
Transnistria
1991 Passed
Bosnia
1992
Passed Puerto Rico
2012
Failed
South Ossetia
1992 Passed
Montenegro
1992
Failed
3 of 14 South Ossetia
2006 Passed
Montenegro
2006
Passed
(21%)
Transnistria
2006 Passed
15 of 16
6 of 6
(94%)
(100%)
Source: Citi Research based on data from the Journal of Public Money & Management, national election agencies. This chart does not include any votes related to the current
Ukraine crisis.
2014 Citigroup
27
28
May 2014
Vox Populi Risk in Emerging

Markets: Mass Protest Can Be ProReform Yet May Not Lead to
Change in Government
In younger democracies or states where the ballot box is not an option, social
unrest becomes the most vivid example of Vox Populi risk. In terms of unrest, Vox
Populi risk can be captured in the emergence of new social movements, street
demonstrations, rebellions and insurgencies, even coups dtat and revolutions.
Unelected leaders in less democratic regimes also face threats to legitimacy, even
in cases where they have successfully delivered improved living standards in the
pre-crisis period. In 2012 and 2013, major public protests occurred in Bangladesh,
Brazil, Bulgaria, Egypt, India, Jordan, Morocco, Pakistan, Romania, Russia,
Slovenia, South Africa and Turkey. Even after protest movements culminate in
crises or revolutionary transformations, history suggests that they also re-emerge
periodically in the subsequent months or even years later a pattern suggesting
that protests beget protests.
New middle class in EM are increasing
demands on the political system
A key byproduct of the new EM middle class is their increased demands on the
political system. These can include higher public spending on transport, health and
education, greater accountability for public officials, plus greater civil and political
rights. In many emerging and frontier markets, the poor quality of the official
bureaucracy and the often routine nature of graft and corruption can fuel distrust of
elites.
Figure 16. Protests and Civil Conflicts, 2011-2014
Turkey
Romania
Kuwait
Russia
Bulgaria
Colombia
Bahrain
India
South Africa
Bangladesh
Egypt
Venezuela
Ukraine
Syria
Nigeria
Italy
Thailand
Russia
Civil Conflict /
Civil War
Military
Intervention
Violent Protests/
Armed Confrontation
Mass Peaceful
Protests
Brazil and Turkey: Protests and Elections in Two of the Fragile 5

How a crisis is handled is as important as
what the crisis is about
2014 Citigroup
When Vox Populi risk presents itself on the streets, a key variable determining
whether it will translate into wider disruption is the nature of the government
response. A governments conciliatory posture can lower the risks resulting from
social unrest, while a defiant crackdown, especially when the deaths of protestors is
involved, will likely increase them. To illustrate this, we compare the paths of Brazil
and Turkey.
May 2014
29
Figure 17. Protests By The Numbers: Little Similarity in Key Indicators, Except for Long
Tenures in Office for Ruling Parties in the Biggest EM Economies with Social Unrest
Leader
Tenure of party in
government
Party
orientation
Freedom House rating
Next elections
Catalyst for protests
Brazil
Rousseff
10 years
Indonesia
Yudhoyono
9 years
Russia
Putin
14 years
Social
Center-right
Conservative
democratic
Free
Partly free
Not free
October 2014
April 2014
2016
Transit fare Fuel price hikes Democracy
hikes
activism
GDP growth (2013F)
2.3%
5.8%
1.3%
Unemployment (2013F)
5.5%
6.3%
5.5%
Inflation (2013F)
6.2%
6.4%
6.8%
Personal satisfaction rate
59%
15%
22%
Business climate (rank of 185)
130
128
112
Corruption indicator
63
28
13
Rule of law indicator
52
34
24
Source: Freedom House, World Bank, Gallup World Poll, Citi Research
South Africa
Zuma
19 years
Turkey
Erdogan
11 years
Social
democratic
Free
Summer 2014
Labor disputes
Conservative
1.9%
24.7%
5.8%
17%
39
59
58
Partly free
Spring 2014
Istanbul park
redevelopment
4.0%
9.8%
7.5%
21%
71
61
57
The Brazilian government sought to resolve

the conflict quickly through negotiation
In Brazil, reaction to the perceived harsh police response to the Salad Revolution
protestors on the streets of Rio de Janeiro swung popular support behind the
demonstrators and with it the sympathy of the media and government officials
(indeed many figures in the ruling Workers Party (PT), including President Dilma
Rousseff, are products of 1980s-era protest and revolutionary movements).
Ultimately, in a change of stance, the Brazilian government agreed to reverse the
transit fare hikes that sparked the protests, and to commit to a dialogue on reform.
Rousseffs approval rating dropped from a high of 65% in March 2013 to 30%
following protests in June 2013, according to Datafolha. Even given that Rousseffs
approval ratings have improved slightly and she remains the favorite for re-election
in 2014, albeit with her challengers enjoying a modest boost, this new challenge has
had an impact on her political calculus, that of her Workers Party, and of the
9
opposition.
while the Turkish government took a

hardline response to protestors
Turkish Prime Minister Recep Tayyip Erdogans response to the May 2013 Gezi
Park incident sought to limit protests with a strong response by the security
services. The spread and duration of the protests increased pressure on the ruling
AK Party (AKP). Erdogans approval ratings dropped from 62% in December 2012
to 53% in June 2013, and now stand at 44% in February 2014, according to
10
MetroPoll. With falling approval ratings, prospects for constitutional reform may be
delayed, but given the partys performance in spring municipal elections, plans to
hold the first direct elections for the Turkish presidency in 2014 are likely to go
forward. Thus, despite the scale of the protests, the AKP-led government largely
retains its core support, while the opposition has failed to capitalize upon public
dissent, suggesting division and paralysis rather than political change may be the
key outcome. With Brazil and Turkey heading into elections this year and 2015,
there is significant potential in both cases that protest activity will return yet in both
cases, the incumbent political parties are expected to be re-elected, albeit by
smaller margins, according to the latest polls.
Datafolha. Aps Cair Pela Metade, Aprovao a Governo Dilma Volta a Crescer. August 12,
2013. Based on a survey of 2,615 adults conducted August 7-9, 2013, margin of error +/- 2%.
10
Tom Peter. Poll Shows Erdogans Popularity Has Taken A Hit. Could He Lose His
Mandate? The Christian Science Monitor, June 18, 2013.
2014 Citigroup
30
May 2014
In the Turkish case, the protests highlighted existing social and political divisions
as well as the continued fragmented state of the opposition. The incumbent AKP is
likely to see its core political support, drawn largely from the countrys new middle
classes, continue. Yet its approach to the Gezi Park protest may mean that the
opposition to its policies remains, occasionally generating periodic disruptions, even
as it lacks the strength to displace the incumbent party at the ballot box. In Brazil, a
longstanding consensus-based model may reduce the intensity of future protests
but pave the way for more within-system political challengers over time. We
surmise that these flash mob protest movements may serve as mid-cycle
referenda on incumbents, reducing their room for maneuver and willingness to
undertake unpopular policy measures, such as reforms.
Despite Chinas rising middle class, it has
not experienced Vox Populi risk events
Having said that, not all EM economies are experiencing Vox Populi risk in its most
disruptive form. In China, local strikes and protests called mass incidents by
Chinese authorities were reported to have doubled between 2006 and 2010 to
11
180,000 nationwide, according to the Wall Street Journal . Yet 85% of Chinese
report being satisfied with their countrys direction, 70% rate their living standards
as higher than they were five years ago, and 67% say their personal economic
situation is good all at or near the top of more than 40 countries surveyed by the
12
Pew Research Global Attitudes Project. These snapshots of public opinion
suggest that, despite Chinas growth, environmental and government challenges,
the risk of any Jasmine Resolution may be limited. Nevertheless, Chinese
authorities appear mindful of the risk that perceptions on corruption can pose to
government legitimacy, judging by Beijings crackdown on visible official corruption.
And as previously mentioned, the strong correlation between internet penetration
rates, a globalized economy and protests suggests that China could see more such
activity in years to come.
11
Tom Orlick. Unrest Grows As Economy Booms. The Wall Street Journal, September 24,
2011
12
Pew Research Global Attitudes Project. Global Indicators Database. Accessed September 13,
2013.
2014 Citigroup
May 2014
31
Vox Populi Risk and Markets

Markets seem relatively immune to
rising Vox Populi risk
For now, global markets seem remarkably immune to rising VPR. After all, the MSCI
AC World equity benchmark is trading around all-time highs (Figure 18). The US
VIX index, sometimes called the investor fear index, remains down around multiyear lows (Figure 19).
Figure 18. Global Equity Prices
Figure 19. US VIX Index

80
440
VIX
MSCI AC World Index
390
60
340
40
290
240
20
190
0
140
95
97
99
01
03
05
Source: Citi Research, Datastream
07
09
11
13
95
97
99
01
03
05
07
09
11
13
Source: Citi Research, Datastream
Volatility in riskier parts of the world seems

to be increasing the desirability of assets in
more stable DM economies
This does not mean that bursts of increased political risk cannot induce bursts of
global market volatility, as we are seeing with the Ukraine crisis. However, the
longer-term market impact has generally been more localized. So, global investors
might see the current crisis as a reason to sell Russian assets. They might even
see it as a reason to sell EM assets. But they do not it as a reason to sell the S&P. If
anything, volatility in riskier parts of the world seems to be increasing the desirability
of assets in the more stable DM economies. Rapidly rising London house prices are
clear enough evidence of that trend.
Central banks have boosted asset prices

that could otherwise have been damaged by
high political risk premiums
Why are markets treating VPR as a localized rather than globally systemic issue?
This might reflect the palliative effect of cheap money. Central banks have
(intentionally) boosted asset prices that could otherwise have been damaged by
higher political risk premiums. For now, global markets seem more interested in
Janet Yellens next move on QE than Vladimir Putins next move in Ukraine. Maybe
this will change, but only when we have seen the end of DM near-zero policy rates
and open-ended liquidity at those extraordinarily low rates.
For those perplexed by this apparent investor complacency, we would highlight that
markets can give a skewed perception of what matters. This is made very apparent
in Figure 20. Here we rank country/regional equity market weightings against their
economic importance. We also show their percentage of the global population. The
US dominates global equity markets, accounting for 49% of market cap. It also
accounts for a meaningful, if not dominant, 22% of global GDP. However, it only
accounts for 6% of the worlds population.
2014 Citigroup
32
May 2014
Figure 20. % Weighting In Global Equity Market, GDP And Population

70
MCAP
GDP in PPP
Population
60
50
40
30
20
10
0
US
EURxUK
UK
JP
PACxJ
CEEMEA
EMASIA
LATAM

Although more of the population is in
emerging markets, investors care most
about DM as its a larger % of market cap
By contrast, EM economies account for only 10% of equity market cap but 81% of
the global population. So, by definition, any analysis of Vox Populi risk is going to
care most about what happens in EM. After all, they are so much more of the populi.
However, we think investors are going to care most about whats happening in DM
economies and the US in particular. Thats why its easier to see the impact of the
Lehman crisis in Figure 18 than the Arab Spring. Investors are doing what comes
naturally worrying about what matters to them.
This doesnt mean that markets cant be more seriously affected by elevated
political tensions, especially in more systemically important DM economies. For
example, global equities fell by 25% in 2011 on fears of a Eurozone break-up and
subsequent sovereign and bank insolvencies. Rising political tensions in the
peripheral countries contributed to the sell-off. Even the mighty S&P wobbled in
response to events on the streets of Athens.
However, even here central bank action came to rescue. Ever since ECB president
Mario Draghi said that he would do whatever it takes to preserve the euro, the
ability of Eurozone political chaos to drag down global markets is much reduced.
Global investors no longer ask us about the latest government collapse in Italy or
rise of extremism in Greece. These are still very real political themes, its just the
markets seem to care about them much less.
The US financial crisis of 2008-09 and the Eurozone crisis of 2010-12 both
threatened the very integrity of the worlds financial system. That is what made
global investors take notice. The fact that current heightened political risks have
shown less ability to move global markets reflects that investors do not (yet) see
them representing similar systemic financial threats.
Indeed, we suspect that robust global markets may actually be adding to Vox Populi
risks. Rising asset prices have made the rich richer. The trickledown to the other
99% is proving more elusive. In DM economies stock markets have risen more
than unemployment has fallen. Wealth gaps have widened. There is a broad
perception that the response to the financial crisis has benefited the elites more
than the rest.
2014 Citigroup
May 2014
This has added to well-established grievances about rising income inequality. Many
good DM blue collar jobs were lost as globalization shifted large parts of the
manufacturing base to lower-cost EM economies. The bargaining position of lowerskilled workers in DM economies has been further undermined by loosening
immigration policies and the subsequent inflows of cheaper labor. Of course, many
have benefited from the positive impact of globalization. In particular, hundreds of
millions have been lifted out of poverty as EM workers have gained access to
higher-paid jobs. DM shareholders have benefited as lower labor costs have
allowed companies to keep profit margins high. But this has put pressure on DM
wages. For example, the US median household real incomes have gone nowhere
since the mid-1990s. A broad sense of rising inequality has proven a fertile hunting
ground for populist politicians.
Global markets will be able to localize
periodic outbursts of Vox Populi risk
Overall it seems that, unless events really escalate, global markets will be able to
localize periodic outbursts of VPR. However, the Eurozone crisis showed us that the
focus on political risk can rise sharply if investors see the prospect of a more
systemic threat to global market stability. In the meantime, the ongoing themes of
higher asset prices and globalization have contributed to a widening sense of
income inequality. So even though global markets may seem remarkably immune to
VPR right now, we believe they are indirectly contributing to it.
Although the effect may not be seen on the

macro level, increased regulation on the
micro level is having an effect
While, for now, global markets seem able to withstand rising VPR at a macro level,
we can see some more micro impacts. Greater regulation of the deeply unpopular
Banking sector has affected profitability. More scrutiny of the sectors frequent
misdemeanors has been accompanied by increasingly punitive fines. Windfall taxes
have also been imposed. Overall, however, an anti-capitalist backlash has not really
materialized. Post the financial crisis, global corporation tax rates have fallen, not
risen. Governments have been more interested in attracting multinational jobs than
taxing their profits. In EM countries, resentment of crony capitalism has emboldened
government attempts to break embedded domestic monopolies. In those companies
that are listed, shareholders could lose out alongside the oligarchs.
2014 Citigroup
33
34
May 2014
Vox Populi Risk in Resource

Economies: Challenges to the
Rentier States
Lower oil prices are a particular worry
in petro-states
The coming year looks to be one of wider and deeper strain for petro-states
countries whose government revenues are particularly dependent on oil and natural
gas exports given the outlook for moderately if not significantly lower oil prices.
The factors that gave rise to the so-called Arab Spring have become a more
permanent part of the domestic landscape for many if not most petro-states, and
continuing pressures for governments to spend their way to legitimacy and authority
will grow if lower prices cause revenue gaps to widen.
The US Energy Information Administration (EIA) estimates that last year total OPEC
revenues amounted to $940 billion, $42 billion less than in 2012, and that estimated
OPEC revenues could fall to a little more than $900 billion this year, a drop of over
$80 billion, or 8%, in just two years. On a per capita basis, thats a decline of $351,
or 11%, over the same period. This is a result of rising populations, falling prices
and stagnant production.
The underlying factors giving rise to the predicament these countries are now in
have their origins in the relatively distant past the 1970s, the decade in which
OPEC came into its own. The sharp rise in oil prices after the 1973 Yom Kippur War
was accompanied by a decade of nationalization of oil-producing properties and
tightened government control over the petroleum and natural gas sectors, with the
OPEC cartel putting a floor under prices that boosted the rents received from lowcost production, creating the conditions for rentier states to flourish. Before the
uprisings in North Africa in the winter of 2010-11, these countries successfully
survived several periods of sharply lower prices: 1981-82, 1985-86, 1989-90, and
especially 1998-99. But the surge in prices over the last decade gave rise to a false
hope that these countries could avoid reform and spend their way out of difficulty.
Several new factors make it close to impossible for this to happen as oil and gas
prices stabilize and appear to be weakening.
Figure 21. Fiscal Oil Breakeven Prices for

Selected Countries ($/bbl, 2011-2014)
Qatar
Kuwait
Saudi Arabia
Oman
UAE
Libya
Iraq
Russia
Iran
Bahrain
Algeria
Venezuela
Yemen
2011a 2012a 2013a 2014e

38
42
46
46
44
49
54
58
77
74
84
88
78
80
94 104
92
79
68
67
183
89
99 100
93
95
99
93
100 115 118 112
84 130 140 143
111 115 119 117
111 120 113 113
140 170 165 156
195 237 215 201
Underlying conditions in many oil producing countries with the notable exception
of Norway in the OECD and the smaller countries in the Gulf Cooperation Council
(Kuwait, UAE, Qatar) are skewed to create problems. These include rapid
population growth, falling per capita income, stark income inequality, high levels of
unemployment and an increase not just in the awareness of opportunities
elsewhere in the world, but also of social media and an ability to communicate
internally and internationally. Tribal and religious schisms exacerbate these other
trends.
Figure 22. MENA Countries: Young and Unemployed
45
40
35
30
25
20
15
10
5
0
Median age
Source: CIA World Factbook, Citi Research
2014 Citigroup
40
35
30
25
20
15
10
5
% unemployment
May 2014
35
All of the petro-states, from Russia to Venezuela and across the Middle East, have
tried to deal with these problems by spending at home and most of them are under
rising pressures to boost income growth. In petro-states it is more easily achieved
through faster rent consumption from higher extraction rates, or higher prices than
through difficult economic reforms, especially reforms that curb domestic energy use
(ending price subsidies) or promote economic growth and employment outside the
petroleum sector. Due to price subsidies, fuel prices in many of these countries are
very low, driving some of the most rapid consumption growth rates in the world. In
addition, slow progress in developing more natural gas resources has meant more
crude oil is burnt directly for power generation. Curbing domestic energy use in
transportation and developing alternatives to direct crude burn for power generation
could free up oil for more lucrative export revenues, but these measures remain
politically difficult, keeping the pressure on to grow income from targeting prices.
Figure 23. Project Breakeven Costs for Planned IOC New Developments to 2020
Russia, Algeria, Bahrain, Iran, Venezuela, Yemen above $110
Producing country
crude oil fiscal
breakeven price 2014
($/bbl)
100
Kashagan Ph 1
Libya, Oman
Can. Heavy Oil

Kashagan
Iraq
Cost and Fiscal Breakeven (Brent US$/bbl)
Goliat
Mackay River 2
80
Low-cost conventional
giants: Brazil, Norway, Iraq
60
Mafumeira Sul
Carioca
Lokichar
Chirag Oil
Papa-Terra
China Offshore Oil
Thuder Horse Ph 2
Appamattox
Foot
TEN NeneBig
Tempa Rossa
Marine
Pao de AcucarLucius Iara Mars B
Whales Park Franco
Sapinhoa
Bauna/Piracaba Lula
Johan Sverdrup
Cepu Exp
Zubair
West Qurna 1
Gumust-Kakap SBJ
Rumaila
40
Saudi Arabia
Fort Hills
Rosebank
AOSP Debottle
Kearl
Carmon Creek
Johan Carstberg
Sunrise Ph 2
Narrows Lake
Bl. 31 SE
Kaskida Kaombo
Y-T
Jack-St Malo Utica Horizon
Expansion
Moho Nord
Trebs Titov
Bucksin Permian
Carabobo
Zabazaba Bosi
Junin 5
Uganda Bl.1,2,3
StonesCLOV Bonga SW/Aparo
Kuwait
Mad Dog 2
Shenandoah Libra
Bakken
Tengiz Exp
Clair Ph 2
Eagle Ford
Bl. 15/06 West
KBB Niobrara
Halfaya
20
Qatar
Deepwater GoM
W.Africa
US shale oil
10
12
14
16
2020e Net Production, Mboe/d
18
20
22
24
26
Source: Citi Research estimates
OPEC has historically sustained revenue by agreeing production quotas enabling

the group as a whole to put a floor under prices well above OPECs very low costs
of production. But rising social welfare requirements are stretching the budgets of all
the producers.
2014 Citigroup
36
May 2014
Figure 24. Failure of OPEC Crude Oil Supply through the 2000s vs. Expectations at the Time
m b/d
25.0
1997-98
2003
1997-98 production
1997-98 capacity
2003 production
2008
2008 actual capacity
2008 planned capacity
20.0
while 2008 actual

productive capacity
fell far short of
planned capacity
Production in these four OPEC

countries faltered between
1997 and 2003...
15.0
10.0
5.0
Total
Nigeria
Venezuela
Iraq
Iran
Total
Nigeria
Venezuela
Iraq
Iran
Total
Nigeria
Venezuela
Iraq
Iran
0.0
Source: EIG, Citi Research

OPEC countries are confronting supply
problems through disruptions
Additionally, OPEC countries are confronting supply problems of their own

stemming from domestic disorder, which first emerged in the late 1990s. As of 1998,
four OPEC members Iran, Iraq, Nigeria and Venezuela had plans to raise
output by a combined 10 million barrels per day (10m b/d) by 2008. But disruptions
at home resulted in 2008 output for the four countries being lower than in 1998.
These supply disruptions created the context for the 2011 Arab Spring.
Figure 25. Russian Government Oil & Gas
Revenues Versus Social Spending ($bn)
Figure 26. Russias Fiscal Breakeven Oil Price

($/bbl)
160
250
140
200
120
150
100
100
80
50
60
0
2003
40
2004
2005
2006
Social expenditure
2007
2008
2009
Oil and gas revenue
Source: Russian Ministry of Finance, Citi Research

Participation in governance and a quest
for greater revenue or income to be better
distributed are issues shared across
petro-states
2014 Citigroup
2010
20
0
2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: Russian Ministry of Finance, Citi Research
Two issues arise to one degree or another across these petroleum-based economies.
One is an outcry for participation in governance and the other is a quest for greater
revenue or income to be better distributed than the concentrated distribution at the top
in many of these countries. So far the result has been most vivid in Libya, Yemen and
Nigeria, but 2014 could see this call for greater voice for the bulk of the citizens
spread beyond these countries and reach Venezuela and Iraq as well. Certainly the
two episodes of disruption in Libya after February 2011 and since August 2013
are a dramatic part of the rise of total global oil disruptions across OPEC and nonOPEC countries that have occurred since the early part of 2011. Before then, the
average level of oil supplies taken off the market was about 500,000 barrels per day
May 2014
37
(500-k b/d) with exceptions like 2002-03 when disruptions occurred in Nigeria,
Venezuela and of course Iraq during the second Gulf War. Since then, the average
level of disruption has been around 2m b/d) and in recent months has topped 3.5m
b/d at times. Some of this includes Iranian supplies that have been off market
because of internationally imposed sanctions.
Figure 27. Crude Oil Supply Disruptions in OPEC and Non-OPEC
Countries (2011-13)
m b/d
non-OPEC
Figure 28. Crude Oil Supply Disruptions in Iraq, Nigeria, Libya, Iran
(2011-13)
thousand barrels per day
OPEC
3,500
4.0
3.5
3,000
3.0
2,500
Iraq
2,000
Nigeria
2.5
2.0
Libya
1,500
1.5
Iran
1,000
1.0
There is increasing competition for rents

a grab for rents
Jan-11
Feb-11
Mar-11
Apr-11
May-11
Jun-11
Jul-11
Aug-11
Sep-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Nov-13
Jul-13
Sep-13
May-13
Jan-13
Mar-13
Sep-12
Nov-12
Jul-12
May-12
Jan-12
Mar-12
Nov-11
Jul-11
Sep-11
May-11
0.0
Jan-11
500
Mar-11
0.5
Source: Citi Research. Note that the EIA counts Iran supply disruptions at 600-k b/d;
this does not include the total outage of ~1.5-m b/d, but represents the volumes that
EIA assesses can be brought back to market quickly.
Aside from issues related to what individual oil-producing countries are seeing
unfold in terms of the ultimate nature and structure of governments and governance
at home, a critical theme has been what we think can be called The Grab for rents.
In Libya, participation of many competing factions in receiving rents from oil
production looms large and the very lack of a national military makes it difficult for
the central government to maintain order at home, particularly in the context of a
widespread distribution of weapons among local militias as a hangover from the
uprising against Gadhafi. Questions are arising about the division of oil revenues
between the central government and oil producing areas, between the state oil
company and the central government, and between them and local communities
and tribal groups and even between groups of oil workers. Rebel forces have
blocked crude production from certain fields and exports from the eastern ports, and
some groups have launched attacks against the Libyan parliament in Tripoli, as well
as in Benghazi. All this distributional conflict has hit production hard, which now
stands at the 200-300k b/d level, a far cry from the fast resumption of supplies postcivil conflict up to the pre-conflict 1.5-m b/d level by mid-2012.
The Grab also pervades politics in Nigeria, which confronts elections this year that
revolve significantly around sharing of rents, as it does in Iraq, particularly but not
only between Baghdad and the Kurdish Regional Government (KRG) in the north. It
could also spread to Venezuela, where a government burdened by debt and facing
rising social discontent can do little to raise revenues and has seemingly just about
run out of new opportunities to finance further debt. And the openness of domestic
disputes in Libya, Yemen, Nigeria and Iraq over sharing of rents can be found in
more subtle ways across the other petro-states, including Russia, Kazakhstan,
Azerbaijan and the GCC countries, but they have deep financial cushions that could
enable them to weather the stormy environment ahead and even make headway in
initiating reforms to overcome the dilemmas of being petro-states.
2014 Citigroup
38
May 2014
Todays global oil environment is quite different from prior episodes of stagnant or
lower prices. A decade of high prices helped by OPEC policy and insufficient
investment has supported global upstream capital expenditures that are bearing
fruit. While these hydrocarbon resources are further up the cost curve than the lowcost supplies within OPEC, much of this, including major upside potential, sits in the
$50-80/barrel project breakeven range, below the $110 Brent price level seen on
average in the past few years. New production has been forthcoming from an array
of non-OPEC producers, starting with the countries in North America based on
unconventional resources from shale and oil sands that could add more production
in 2014 than total oil demand growth. While some non-OPEC supply outside North
America has disappointed so far this year, particularly Kazakhstan, supply does
continue to outpace demand. Meanwhile, global geopolitical supply disruptions
continue to keep productive capacity offline in OPEC and non-OPEC countries at
much higher persistent levels than before. But, over the next few years, ongoing
supply growth and tepid demand growth could lead to a downside breakout of the
price range that Brent has seen in the last few years. This means a cut in OPEC
output would be needed to prevent inventories from growing and to prevent a slide
in prices, but the challenge is: who can afford to cut when the time comes? The
shale and deep water supply revolutions are not likely to dissipate any time soon,
and OPEC countries, with stagnant total production, should see their global market
share reduced.
Figure 29. Venezuelan Public Sector Debt

Obligations
Source: IIF
Figure 30. Global Oil Supply-Demand Balances by IEA, EIA, OPEC Secretariat and Citi Research (March 2014)
IEA (m b/d)
OECD Demand
Non-OECD Demand
Total Demand
Non-OPEC Supply
OPEC Crude
Total Supply
Call on OPEC Crude
46.1
45.4
91.4
54.7
36.8
91.5
30.4
Q1 2014
45.8
45.6
91.3
55.7
36.4
92.1
29.2
Q2 2014
45.3
46.8
92.1
56.1
Q3 2014
46.2
47.3
93.6
56.2
Q4 2014
46.6
47.4
94.0
56.8
29.6
30.8
30.7
EIA (m b/d)
OECD Demand
Non-OECD Demand
Total Demand
Non-OPEC Supply
OPEC Crude
Total Supply
Call on OPEC Crude
2013
46.0
44.4
90.4
54.0
30.0
90.4
30.0
Q1 2014
46.3
44.5
90.7
54.6
29.8
90.6
29.9
Q2 2014
45.2
45.9
91.1
55.5
29.5
91.3
29.2
Q3 2014
46.0
46.2
92.2
56.0
29.9
92.3
29.8
OPEC (m b/d)
OECD Demand
Non-OECD Demand
Total Demand
Non-OPEC Supply
OPEC Crude
Total Supply
Call on OPEC Crude
2013
45.9
44.1
90.0
54.2
30.2
90.1
30.2
Q1 2014
45.8
44.4
90.2
55.5
29.8
91.1
28.9
Q2 2014
45.2
45.0
90.2
55.1
Citi (m b/d)
OECD Demand
Non-OECD Demand
Total Demand
Non-OPEC Supply
OPEC Crude
Total Supply
Call on OPEC Crude
Source: : IEA, EIA, OPEC Secretariat, Citi Research
2013
46.1
45.4
91.4
50.5
30.5
91.5
30.4
Q1 2014
45.8
45.6
91.3
51.9
30.0
92.1
29.2
2014 Citigroup
2013
2014
30.1
13' Growth
0.1
1.2
1.2
1.3
-0.7
0.6
-0.2
14' Growth
-0.1
1.4
1.3
1.5
-0.3
Q4 2014
46.5
45.7
92.2
56.1
29.5
92.1
29.7
2014
46.0
45.6
91.6
55.6
29.6
91.6
29.6
13' Growth
0.1
1.1
1.2
1.4
-0.9
1.1
-0.7
14' Growth
0.0
1.2
1.2
1.6
-0.4
1.2
-0.4
Q3 2014
46.1
45.9
91.9
55.4
Q4 2014
46.1
46.1
92.3
56.3
2014
45.8
45.3
91.2
55.6
14' Growth
-0.1
1.2
1.1
1.4
29.4
30.7
30.0
29.8
13' Growth
-0.1
1.1
1.1
1.3
-0.9
0.5
-0.4
Q2 2014
45.3
46.7
92.0
51.9
30.0
92.5
29.4
Q3 2014
46.2
47.2
93.4
51.6
30.4
93.3
30.5
Q4 2014
46.6
47.3
93.9
52.6
30.6
94.1
30.4
2014
46.0
46.7
92.7
52.0
30.2
93.0
29.9
13' Growth
0.1
1.2
1.2
1.1
-0.9
0.6
-0.2
14' Growth
-0.1
1.3
1.2
1.4
-0.2
1.5
-0.5
46.0
46.8
92.8
56.2
-0.4
May 2014
OPEC as a whole is under stress to put

a floor under prices
At the same time, fiscal and other pressures make it doubtful that these countries
will be able to jointly reduce production by enough to put a floor under prices. And
Iran and Iraq have served notice in OPEC that they would not look to constrain their
own production in the future, given their view that others in OPEC have financially
benefited from their lost production in recent years. So, OPEC as a whole is under
stress, having lost credibility that they can limit price rises by raising production very
much, and also confronting in 2014 a test of the organizations ability to put a floor
under prices if supply abundance materializes. Meanwhile, social media could
potentially have strong demonstration effects. If Iraq or Libya or Nigeria were to
succeed in what we view as the long-shot possibility of finding a solution to a fair
sharing of petroleum rents, the lessons are likely to spread across other petrostates as well.
If rents continue to shrink, petro-states could

become fragmented along tribal, regional or
sectarian lines
In a less optimistic scenario, falling oil prices and thus shrinking rents would set the
two forces against each other: the pressure to rein-in government expenditures
even as the Vox Populi call for a fairer share of political power and rents. Without
addressing their internal structural issues, petro-states could even become
fragmented along tribal, regional and/or sectarian lines. The New York Times has
suggested that six states in MENA, from Libya to the Gulf, could potentially
fragment into 14 new entities, with Libyas regions more driven by tribal and regional
power struggles with the countrys oil production split roughly half-half between
the west and the east and Sunni-Shia lines playing an important role in the
Arabian Peninsula, along with ethnic and tribal lines.
Though arguably a democratizing force in one sense, the Arab Spring movements
have also left power vacuums and social and economic turmoil in their wake,
providing favorable conditions for al-Qaeda and affiliated and other extremist groups
to enter the fray. This trend could increase tension and instability in the region, and
manifest in growing threats to oil and gas infrastructure from possible terrorist
attacks.
2014 Citigroup
39
40
May 2014
Vox Populi Risk and the

International System: A Boost for
Diplomacy as a Silver Lining?
How can shifting and more volatile domestic public opinion affect the geopolitical
sphere? One of the more profound consequences of Vox Populi risk for the
functioning of the international system is the increasing evidence that the use of
military power is less available as an option for leaders even those with executive
war powers.
Public willingness to support military
conflicts has fallen and is a boost
for diplomacy
As evidenced during the aborted effort to reinforce the so-called US red line
against chemical weapons usage in the Syrian civil war in August 2013 and again in
the early stages of the Ukraine crisis in the spring of 2014, public opinion is
increasingly against the use of hard power. A possible silver lining for this change
in public willingness to support the use of military force is a boost for diplomacy,
which helped lead to the breakthrough between Iran and the P5+1 efforts and the
surprise Russian-US cooperation on disposing of Syrias chemical weapons.
The Ukraine crisis, which started as street protests and has accelerated to become
one of the most significant geopolitical challenges since the end of the Cold War, is
an example of Vox Populi risks potential impact on the international system,
highlighting how country risk can become geopolitical risk overnight. Russias
involvement in the Crimea has ruptured its relationship with the West. This has
raised concerns about further violations of the post-Soviet borders, as well as
reduced cooperation on a host of geopolitical challenges, such as Irans nuclear
program and the disposal of Syrias chemical weapons. Yet Western military action
did not gain traction in the debate about possible responses to the Russian actions
in Crimea.
Although a growing reliance on soft power

could encourage rogue forces
Of course there is a divergence of views about the reluctance to exercise force, and
fears in some regions that a growing reliance on soft power could give
encouragement to rogue forces, such as non-state actors or countries operating
outside international norms. In our view, regardless of the consequences, it will be
difficult for a US or European leader to secure public support for military
engagements that involve soldiers on the ground or manned aircraft in the skies for
the foreseeable future, increasing the reliance upon diplomacy and policy levers
such as sanctions which generate their own array of consequences.
More broadly, these shifts have exposed fractures in regional and international
blocs like the EU and the Arab League. In other places, like China and Japan,
populist or nationalist government sentiment has seen military buildups.
2014 Citigroup
May 2014
The Outlook for the Future

What next for Vox Populi risk? Although the modest economic recovery could blunt
further intensification of support for radical and populist political parties or largescale mass protests, we expect the continuation of volatile public opinion, pressure
on policymakers, and demand for political alternatives to endure.
With such variable economic and governance indicators between countries
experiencing unrest over the past two years, there is considerable difficulty in
establishing key variables to anticipate Vox Populi risk. The academic literature
supports the notion that economic downturns, high and rising inflation and fiscal
contractions typically not merely the presence of one alone, but often the whole
group of indicators subject states to extreme pressure.
With such pressure comes increased risk of instability. Another factor commonly
cited by scholars is longstanding or ageing leadership. Certainly the key Arab
Spring countries all had in common the presence of longstanding leaders: 12 years
in Yemen, 24 years in Tunisia, 30 years in Egypt, and 42 years in Libya. Also
relevant are political and socio-economic indicators, such as the presence of an
election year, worsening infant mortality, recent coup activity or unrest, and ongoing
instability either at home or in neighboring states. Its often said that instability
13
breeds instability.
In our analysis, we highlight the importance of surprise when it comes to VPR
events that can affect markets; looking at our VPR event tracker, markets have
been caught off guard by a significant proportion of VPR events, suggesting that the
longstanding disconnect between politics and markets continues.
States that mitigate or weather unrest tend to have the support of broad-based
coalitions and/or social cohesion, a strong fiscal position to support public
expenditure, either through tax revenue or resource royalties; the presence of
independent institutions, and support from international actors, whether diplomatic,
14
financial or military. The presence of many of the sources of stability could help
explain the somewhat counterintuitive absence of major incidence of social unrest in
the austerity-wracked eurozone periphery.
States that experience more acute incidence of Vox Populi risk tend to exhibit the
opposite: deteriorating ties to traditional domestic allies, a weakening fiscal base,
and/or an erosion of regional or international support.
Between 2014 and 2016, another major election cycle will take place, with polls in
Belgium, Brazil, Hungary, India, Indonesia, Lebanon, Portugal, Romania, South
Africa, Sweden, Thailand, Turkey and the United States, as well as for the
European Parliament, among others. Several of these already grapple with Vox
Populi risk. Again, history suggests that the re-emergence of protest in the run-up to
elections is likely though a change in leadership may not necessarily be.
13
See, for example, Jack Goldstone et al. A Global Model for Forecasting Political Instability.
American Journal of Political Science, 54 (1), January 2010. Jonathan Powell. Determinants of
the Attempting and Outcome of Coups detat. Journal of Conflict Resolution, 56 (6), 2012. Jay
Ulfelder. Assessing Coup Risk in 2012. Blog post. January 30, 2012.
14
Adapted from Sean Yom and F. Gregory Gause III. Resilient Royals: How Arab Monarchies
Hang On. Journal of Democracy, 23 (4), October 2012.
2014 Citigroup
41
42
May 2014
Figure 31. What Lies Ahead: Major-Market Elections for 2014-2016

2014
Brazil
European Parliament
France (municipals)
India
Indonesia
South Africa
Spain (Catalonia)
Turkey (local, presidential)
United Kingdom (Scotland)
United States
2015
Argentina
Canada
Denmark
Mexico (legislative)
Nigeria
Poland
Portugal
Spain
Turkey
United Kingdom
2016
Australia
Croatia
Ireland
Japan (Upper House)
Mexico
Russia (legislative)
South Korea
Taiwan
United States
It has been suggested that democracy is in decline in the aftermath of the global
financial crisis. Certainly voter participation rates have been on a steady decline for
decades, especially among the young. Yet the public demand for political
alternatives, the spike in protest activity and the flexibility found in the worlds
democracies refute that point. Demand for participatory democracy shows no signs
of slowing, nor do the pressures and opportunities of globalization. We think it will
be the ability of leaders to respond to public concerns while anticipating the shifts in
the global system that will largely determine the shape of things to come.
2014 Citigroup
May 2014
43
Appendix: Vox Populi Events in DM

and EM Since 2001
Figure 32. Appendix: Vox Populi Events in Developed and Emerging Markets, January 2011-April 2014
Country
DM/EM Date
Event
Australia
DM September-13 Federal election
Austria
Belgium
DM
none
Brazil
EM July-13
Mass protest
Canada
DM May-11
Federal election
Canada
DM May-12
Mass protest
China
EM February-11 Mass protest
China
EM November-12 Leadership handover
Colombia
EM November-11 Mass protest
Colombia
EM August-13
Mass protest
Colombia
EM December-13 Mass protest
Czech Republic
EM October-13
General election
Denmark
DM September-11 General election
Egypt
EM January-11
Mass protest
Egypt
EM March-11
Referendum
Egypt
EM January-12
Parliamentary election
Egypt
EM May-12
Presidential election
Egypt
EM December-12 Referendum
Egypt
EM December-12 Parliamentary election
Egypt
EM July-13
Mass protest, coup
Egypt
EM January-14
Referendum
Finland
DM April-11
General election
France
DM April-12
Presidential election
France
DM June-12
Legislative election
Germany
Greece
EM May-10
Mass protest
Greece
EM May-12
General election
Greece
EM June-12
General election
Hong Kong
DM
none
Hungary
EM
none
India
EM April-11
Mass protest
India
EM January-13
Mass protest
Indonesia
EM June-13
Mass protest
Ireland
DM February-11 General election
Israel
DM July-11
Mass protest
Israel
DM January-13
General election
Italy
DM February-13 General election
Italy
DM November-13 Mass protest
Japan
DM December-12 General election
Japan
DM July-13
Election
Korea
EM December-12 General election
Malaysia
EM May-13
General election
Mexico
EM July-12
General election
Mexico
Netherlands
New Zealand
DM November-11 General election
Norway
Peru
EM April-11
General election
Philippines
EM May-13
General election
Poland
EM October-11
General election
Poland
EM September-13 Mass protest
Portugal
DM June-11
General election
Portugal
DM March-13
Mass protest
Russia
EM December-11 General election
Russia
Russia
EM March-12
General election
Russia
EM February-14 Military intervention
Singapore
DM May-11
General election
2014 Citigroup
Catalyst/Outcome
Tony Abbott's Coalition defeats Kevin Rudd's Labor
SPO/Faymann re-elected, NEAPs Stronach and NEOS enter parliament
Vox
Populi
Risk
Low
Mid
Salad Revolution
Conservatives/Harper re-elected
Student protest in Quebec, fall of Charest's Liberal government, election of PQ
Pro-democracy protests following Arab Spring
Xi Jinping becomes paramount leader
Student protests
Agricultural protests
Protests in support of deposed Bogota mayor
CSSD defeats TOP/Civic Democrats, rise of ANO
Thorning-Schmidt's Red Coalition defeats Rasmussen/Venstre
Mubarak deposed after mass demonstrations
Post-Mubarak constitutional changes pass
FJP wins majority in Shura Council
Morsi defeats Shafik
Morsi-backed constitution passes
Islamists take control
Morsi deposed, government crackdown on Muslim Brotherhood
Sisi-backed constitution passes
Katainen elected, rise of True Finns
Hollande defeats Sarkozy
Socialists and allies defeat UMP and allies
Merkel re-elected, grand coalition with SDP
Anti-austerity protests
Hung parliament, rise of Syriza and Golden dawn, collapse of PASOK
Samaras's ND defeats Tsipras's Syriza
High
Low
Low
Low
Low
Low
Low
Low
Mid
Low
High
Low
Low
Low
Low
Low
High
Low
Mid
Low
Low
Low
High
High
Mid
Anti-corruption protests
Anti-rape protests
Fuel price protests
Enda Kenny's Fine Gael defeats Fianna Fail
Economic protests
Netanyahu re-elected, new coalition with Yesh Atid
Hung parliament, rise of Five Star Movement, Letta cross-party government
Pitchfork protests
Abe's LDP defeats DPJ
Abe's LDP and allies take control of Upper House
Park Gyun-hee elected
UMNO re-elected
Pena Nieto/PRI defeats Vazquez Mota/PAN
Anti-Pact for Mexico protests
Rutte re-election, new coalition with Labour, brief rise of Socialist Party
Key's National Party re-elected
Solberg's Conservatives defeat Stoltenberg's Labour, Progress Party enters coalition
Ollanta Humala elected
Aquino's Liberals and allies gain seats
Tusk's PO re-elected
Anti-government protests led by opposition
Passos Coelho's Social Democrats defeat Socrates's Socialists
Anti-austerity protests
United Russia wins Duma election
Pro-democracy protests
Putin elected to third term
Russian intervention in Crimea
People's Action Party re-elected
Mid
Mid
Mid
Low
Mid
Mid
High
Mid
Low
Low
Low
Low
Low
Low
Mid
Low
Mid
Low
Low
Low
Low
Low
Mid
Low
Low
Low
High
Low
44
South Africa
EM
Spain
DM
Spain
DM
Spain
DM
Spain
DM
Sweden
DM
Switzerland
DM
Switzerland
DM
Taiwan
EM
Thailand
EM
Thailand
EM
Turkey
EM
Turkey
EM
United Kingdom DM
United States
DM
United States
DM
2014 Citigroup
August-12
May-11
September-12
November-12
September-13
none
October-11
February-14
January-12
July-11
October-13
June-11
May-13
none
September-11
November-12
May 2014
Mass protest
Mass protest
Mass protest
Election
Mass protest
Marikana labor unrest

Indignado Movement
Catalan National Day protest 2012
Catalonian election, Artur Mas re-elected on sovereignty platform
Catalan National Day protest 2013
Mid
Low
Mid
Mid
Mid
General election
Referendum
General election
General election
Mass protest
General election
Mass protest
All-party coalition continues

Immigration referendum
Ma Ying-jeou/Kuomintang elected
Yingluck Shinawatra's PTP defeats Vejjajiva's Democrat Party
Anti-Shinawatra protests
General election, AKP re-elected
Gezi Park protests
Low
Low
Low
Low
High
Low
High
Mass protest
Federal election
Occupy Wall Street protests

Obama re-elected, divided Congress
Low
Low
May 2014
Notes
2014 Citigroup
45
46
May 2014
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NOW / NEXT
Key Insights regarding the future of Vox Populi risk
GLOBAL REACH
Protest movements have had a significant impact on the global landscape in the past
however the short term impact of these movements to the economy and the
investment environment was mainly domestic as news traveled slowly. / The Internet
and social media has increased the speed with which information is sent and
digested, creating flash mob democracy and greater awareness of global events.
POLICY
Mainstream political parties became the dominant parties past World War 2 with
clearly defined definitions and constituents. / The rise of new, emerging and
alternative parties with anti sentiments is creating gridlock in many governments
which ultimately hinders economic growth.
SHIFTING WEALTH
Thanks to rapid emerging market economic growth, global income inequality across
countries has decreased significantly, raising world incomes and reducing poverty. /
Income inequality within individual societies has shot up with parents now fearing
their children will be worse off than they are themselves as an aging population uses
their voting strength to block cuts to public resources such as retirement and
healthcare.
2014 Citigroup
47

www.citi.com/citigps
2014 Citigroup

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TAKING IT TO THE STREETS

Citi GPS: Global Perspectives & Solutions

Citi GPS: Global Perspectives & Solutions

Citi GPS: Global Perspectives & Solutions

TAKING IT TO THE STREETS

Peaceful mass protest

Giving the People What They Want

Shifting and more volatile public

Vox Populi Risk

DM/EM Election & Mass Protests (2000-2013)

Mass Protests (2000 - 2010)

Mass Protests (2011 - 2013)

Citi GPS: Global Perspectives & Solutions

Vox Populi and Macroeconomics: Uncertainty Curbs Growth

Vox Populi and Macroeconomics: Income Inequality Fuels

Vox Populi Risk in Emerging Markets: Mass Protest Can Be

Citi GPS: Global Perspectives & Solutions

Vox Populi Risk: The New Politics of

According to emprical research produced by Citis Political Analysis team, (which we

During 2011-2014, non-mainstream political parties have seen an unprecedented

Citi GPS: Global Perspectives & Solutions

Source: Citi Research

Although we document a marked increase in the number of politically generated

and perception of elite corruption

Citi GPS: Global Perspectives & Solutions

Citi GPS: Global Perspectives & Solutions

while the economic impact has short- and

On the positive side, Vox Populi risk is

Citi GPS: Global Perspectives & Solutions

What Is Vox Populi Risk? Is it Really

Trust in public institutions has declined

But global equity indices are trading at

Protest movements in the past had greater

Citi GPS: Global Perspectives & Solutions

Todays protests are feeding upon each

Source: Citi Research

Figure 3. Fractious Politics: A Few Effects of

France: Resurgent far-right Front

Greece: Rise of hard-left and neo-Fascist

Italy: Hung parliament

US: First government shutdown in 17

Citi GPS: Global Perspectives & Solutions

Figure 4. The Mechanism of Vox Populi Risk

Source: Citi Research

Source: Citi Research

Citi GPS: Global Perspectives & Solutions

The Empirical Basis for Vox Populi Risk

Events that impacted global politics the

basic nature of the state, meaning they were pro-representative government in

Citi GPS: Global Perspectives & Solutions

Little impact from the effects of GDP growth,

$14,100, median $11,600) and higher in low-VPR countries (mean $25,700,

Citi GPS: Global Perspectives & Solutions

ECB, BoJ actions,

US policy uncertainty, Fed

Social Media Fuels Flash Mob Democracy, but Doesnt

The rise of the internet has been rapid

Citi GPS: Global Perspectives & Solutions

Internet Penetration (Nominal, Millions)

Nominal Internet Penetration

Index Increase in Internet Penetration

Index Increase in Internet Penetration

Egypt Turkey Ukraine

Source: World Bank, Citi Research